Homeowner financing aka seller financing can be used for purchasing a home as an alternative to most commonly used mortgage loans because it is beneficial for both the buyer and the sellers. Though buying a home with the help of its owner or seller is not considered by the listing agents as well as most of the homeowners still it is used by many home sellers and buyers under certain conditions. Buyers use this type of loan because they are not able to fulfill the conditions of the lenders and sellers who are unable to sell their home also offer owner loans to the buyers to complete the sale deal.
In this write-up, you will get brief information about homeowner financing and its benefits for the sellers and the buyers.
What is homeowner financing?
When the present owner of a home provides all or part of the money required for buying that home to the buyer then it is known as homeowner financing. It is a kind of taking a mortgage loan from the seller of the house instead of a commercial lender. In this way, the buyer can get his purchase completely or partially financed by its previous owner or seller.
While availing homeowner financing both seller and buyer have to agree upon a rate of interest, schedule of monthly payments along with other details of the loan. After agreeing on certain terms the buyer provides a promissory note to the buyer to protect both parties.
Benefits of homeowner financing for buyers
The advantages availed by the buyer using homeowner financing for buying a home include:
- No or little qualifying criteria: The buyer need not face strict requirements to be eligible for the owner loan in comparison to the loan raised form a commercial lender.
- Modifiable financing: The buyer and seller can agree upon various types of loan repayment options which may not be possible in traditional loans. These options may include the rate of amortization, interest-only, balloon payment or less-than-interest. They can use these options individually or combine a few of them to make repayment easier and effective for the buyer.
- Flexible down payment: The down payment of homeowner financing can be negotiated between the parties. The buyer can pay a lump-sum amount periodically as the down payment or the seller can ask for a higher amount of down payment than the capability of the buyer. In both conditions, they can negotiate to reach a mutually agreed decision.
- Low cost of the closing deal: The buyer need not pay an assortment of fees like processing fee, origination fee, and administration fee while availing homeowner financing, due to the absence of a traditional lender. It allows the buyers to save a lot of money while closing the purchase of the home.
- Quick possession: The buyer can get possession of the home quickly as he and the seller need not wait for the processing of the loan.
Benefits of homeowner financing for sellers
Like buyers, sellers can also avail some of the benefits of homeowner financing like:
- Sell house at a higher price: The seller is in a position to ask a higher price for his house as he has to finance the buyer. He will receive a lesser amount of the total taxable value of his house in a year.
- Higher rate of interest: The seller can get a higher rate of interest on homeowner financing than he could get in the money market.
- Faster sale: By selling a property against owner loan the seller can sell it fast as he need not call a number of buyers and handle a number of inventories.
Thus, homeowner financing can be beneficial for both, sellers and buyers, in many ways.