Are you a potential Austin home buyer having trouble securing financing? Are you a home owner who wants to sell but is having trouble finding a buyer?
As a buyer, getting a mortgage can be difficult if your financial situation doesn’t fit into neat little boxes – a predictable salary that can be documented with paycheck stubs and W-2 forms, a stable employment history with no interruptions and a gleaming credit score. And as a seller, closing a deal on your home can be difficult if borrowers are having trouble getting approved for loans. Wouldn’t it be great if you could take out the middle man and find another way to complete the transaction?
In this article we’ll focus on a little-known option – Owner Financing – that can help you buy or sell a house.
How Does Owner Financing Work?
Owner financing is just what it sounds like: instead of the buyer getting a loan from the bank, the person selling the house lends the buyer the money for the purchase.
The buyer and seller execute a promissory note providing an interest rate, repayment schedule and consequences of default. The buyer sends his monthly mortgage payments to the seller or loan servicing company, who gets to earn interest on the loan, perhaps at a higher rate than he could get elsewhere. If the seller chooses to sell the loan (more on that later), the buyer will send the monthly mortgage payments to the investor who purchases the loan.
Owner financing arrangements are often for a short term, such as five years, with a balloon payment due at the end. The idea is that the buyer will be able to refinance before then. Of course, arrangements like this can seriously backfire if you’re not careful.
Owner financing tends to be more common in markets where mortgages are hard to come by. There are two reasons for this:
- If mortgages are easy to get, but an interested buyer can’t get one, the seller will be highly suspect of the buyer’s ability to pay. Hence, when loans are generally difficult to obtain, it’s more likely that there might be well-qualified buyers out there who are having trouble securing traditional financing.
- When credit is tight, selling becomes more difficult, so home sellers are more likely to consider unconventional options.
Why Is Owner Financing Uncommon?
If you’re a seller, your first objection to this arrangement might be, “But I don’t have the money to lend to a buyer!” Your second objection might be, “I don’t want to become a lender. It’s too risky.” Another reason why seller financing is not that common is because most sellers need the full proceeds from the sale of their home to purchase their next home.
But according to Robin Daniels, a real estate investor and landlord in central Florida, “many sellers are afraid of selling with owner financing, but do not know that the note they hold is something that can be sold to someone else. This could happen the same day as closing so the seller gets cash right away.” In other words, sellers don’t need to have the cash, nor do they have to become lenders.
The other reason owner financing is uncommon is that people aren’t familiar with it. If you are looking to buy or sell in the Austin area with owner financing or you have general questions about how owner financing works and want to speak with a professional, contact Forte Properties.
Real estate investor Don Tepper of Solutions 3D LLC says, “There are actually dozens of other ways to buy: lease-option, lease-purchase, land contract, contract for deed, equity sharing, wrap mortgages – and the list goes on and on. Most buyers, and most real estate agents, don’t know how any of these work.”
Why Would a Seller Offer Financing?
A home seller might be willing to offer financing for a number of reasons:
- to minimize carrying costs while waiting to find the perfect buyer and get a deal done quickly
- to distinguish the property from other listings and get it sold faster, especially in a down market
- to increase the possibility of garnering the home’s full asking price
- to get a down payment to buy another property
- to pay down debt
- to ditch the monthly expense associated with owning the house
In other words, seller financing doesn’t just benefit buyers who don’t qualify for (or don’t want) traditional financing. It also benefits sellers, especially those who are particularly motivated to sell their homes.
Advantages for Buyers
Owner financing has many advantages for buyers:
1. The closing process can be faster.
Prudent buyers and lenders will always use the closing period to perform their due diligence. But with owner financing, the closing process can be faster. Willie Kathryn Suggs, the principal broker and owner of the Harlem-based real estate brokerage that carries her name, says that with seller financing, “The deal closes faster as there is no waiting for the bank loan officer, underwriter and legal department to clear the file – a process that in New York easily stretches to two or three months for a row house and longer for a co-op.”
2. Closing costs are lower.
Suggs also notes, “Buyers love [owner financing] because they can get in the home for less money. They do not have to pay the bank fees and appraisal costs.”
3. The down payment amount can be extremely flexible.
Instead of having to meet a bank or government-mandated minimum, the down payment amount can be whatever the seller and buyer agree to. This does not necessarily mean that the seller will accept a down payment that is lower than what the buyer would be required to pay elsewhere, but it’s always a possibility. Typically Owner Financed homes in Austin require around 10% down.
Making It Happen
If seller financing appeals to you as a home seller or buyer, how do you make it happen? The answer to that is very simple if you are looking to buy or sell in Austin, TX or surrounding areas… Contact Forte Properties! They have the largest and most experienced team of Austin Owner Finance professionals with all of the in-house resources and professionals required to ensure every Owner Finance transaction is done 100% legal and hassle free. Real estate transactions involve one of the biggest financial investments most people experience in their lifetime. Considering the small upside cost and the large downside risk, it would be foolish to consider an Owner Finance deal in real estate without the professional assistance of Forte Properties in Austin, TX.
There’s more than one way to buy or sell a house in Texas. Just because your financial situation is a little more complex than traditional lenders prefer doesn’t mean you can’t buy. And just because banks aren’t approving borrowers easily doesn’t mean you can’t sell your house quickly – and for what it’s worth. Owner financing might be just the solution you’ve been looking for.