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by Oregon Realtor Roy Widing
When housing markets turn difficult, creativity turns lemons into lemonade. One sweet power-packed technique that helps both buyers and sellers goes by names like ‘seller terms,’ owner financing,’ ‘seller financing,’ or ‘owner carryback.’
What Is Owner Financing?
Owner financing involves a buyer making property payments to the seller, instead of a bank. With owner financing, a buyer makes an initial down payment of perhaps 10 or 20% of the purchase price to the seller, often followed by monthly payments applied to the balance owed. Interest rate, payoff date and other terms are mutually agreed upon by buyer & seller prior to closing.
Why Consider Owner Financing?
For Buyers: In our current economic climate, banks have made it harder to get a real estate loan. Unless a buyer’s income, credit & down payment are quite strong, lenders can be notoriously difficult. These factors, plus the fees banks charge are reasons some choose to avoid traditional lenders.
For Sellers: Offering terms enlarges your ‘buyer pool’ of possible purchasers, giving you more buyers for your property. And by making it easier to buy, you’re providing added value. This helps when negotiating, and often shortens a home’s market time.
Savings, Too!
When a seller ‘takes payments’ via owner financing, this can eliminate costly charges required by traditional lenders. Appraisals, loan fees, underwriting fees, doc prep fees, processing fees. These can go away when a buyer makes payments to the seller. As a result, buyers have more money to use as a down payment, or for furnishings.
Is Owner Financing Common?
Owner financing is more routine in a ‘down’ market. Over the past year or so, many more transactions now involve some form of owner financing, or sometimes cash…neither requiring a traditional lender!
Helpful Hints
Seller terms are easiest when a seller owns the property being sold either ‘free & clear’ with no loan remaining, or with plenty of ‘equity’ which means there is only a small loan balance to pay off. Otherwise, if there is a substantial loan remaining on the property being purchased, the lender who holds the loan on that property likely has a ‘due on sale clause.’ That means the lender must be paid off if the seller sells. Because a much larger down payment from a buyer is then necessary, when a seller has a large loan it is likely to hamper the ability to offer a buyer the option of owner financing.
Other Considerations
For sellers, receiving a substantial down payment is a key factor to decrease the likelihood of later problems. A buyer’s large down payment makes foreclosure for non-payment much less likely due to later non-payment.
Fire insurance and property tax bills are typically paid by the purchaser, so it’s important for the seller to receive receipts of payment from the buyer. Some sellers like to review a buyer’s credit or financial statement prior to selling with terms.
Questions?
Contact our sponsor Certified Realty via e-mail at info@CertifiedRealty.com or via telephone at 503-682-1083. They routinely handle real estate transactions involving owner financing.
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