Do you know the different types of owner financing agreements? If you’re thinking about buying a house with owner financing, make sure you read this blog post because this information will make a huge difference in how much you pay and how long.
Owner financing. For buyers, it’s a powerful way to acquire property without having to go to a bank, and perhaps even to get more favorable terms than you’d get at a bank.
That’s because the seller is the one who finances the purchase of the house, by basically selling the house and accepting regular mortgage payments until the house is paid in full.
There are different types of owner financing arrangements but here’s the most important thing to know: everything is negotiable. When you find a seller who is willing to do an owner financing arrangement, it’s just a matter of bringing together the right components into the agreement to make it a win/win.
Types of Owner Financing Arrangements:
Purchase Price
Of course, the purchase price of the house is up for negotiation. Sometimes the seller might agree to a lower purchase price, or it might be in your interest to negotiate a purchase price today that is very attractive when you finally own the house outright in a few years.
Lump Sum Payment
The seller may want a down payment on the front end of the financing, maybe because they need some money or they want to see that you’re serious. You may want to pay a down payment to reduce the size of the overall financing agreement, or you may not want a down payment because you don’t have the money.
And, sometimes sellers want some money on the back end of the agreement, as a final top-up. Figure out what works for both of you and work with that.
Time
One of the biggest factors of any financing agreement is how long the agreement will be in force – in other words, how long will it take you to pay off the financing? Higher payments usually mean paying off the financing faster, while ultimately paying less interest.
However, lower payments spread out over a longer period of time might raise the overall price of the house but will also be more manageable for you. Again, find what works between you and the seller.
Interest Rate
One of the other biggest factors in any financing agreement is how much interest you’ll pay on the mortgage, and how that interest is calculated. A simple interest rate of 10% added to your financing is very different than an annual compounding interest rate of 10%. Make sure you look at the interest rate terms very carefully!
Summary
There are other considerations about different types of owner financing agreements but you’ll find that these are the main negotiating points in most situations.
Did you know you can skip all the negotiations and complexity and just buy directly from us? (We may even have some owner financing options available). We always have new houses coming in all the time so make sure you check in regularly to see what’s available.