It is a good idea to be fully equipped with a good knowledge base when you are dealing with transactions regarding real estate, so that you have an “in” on all the beneficial options. One such option is Owner Finance. Let us assume that you are a novice when it comes to buying real estate and you do not know what this term means.
So, what exactly is Owner Finance? Simply put, when Owner Finance is used for buying a property, instead of the buyer applying at a bank or lender for a home loan, the seller gives the buyer a loan directly for the property. The seller or owner provides the buyer with the bank finance that the seller already has in place with his bank. In a traditional purchase, the seller receives the full purchase price at settlement, usually within 4 to 6 weeks after contracts have exchanged.
However, in the case of Owner Finance, rather than acquiring all the money at closing, the seller collects monthly repayments from the buyer. The owner takes on the role of the loan institution or bank. This agreement is also very well received for real estate that is free from any previous loan and has a clear title.
When the Owner Finance agreement has been reached, the seller and the buyer will then settle on the terms of the seller financing, the length of the payment schedule and the subsequent interest rate as well. The good thing is that everything is legal and documented into the contract before it is signed and exchanged, protecting and covering both parties.
Even though Owner Finance may sound too good to be true, especially for the buyer, there are actually fringe benefits for both parties. Buyers needs not contend with financial establishments or all the application, processing and services charges that banks and lenders charge. There is also no need to contend with pre-qualifying requirements for the bank. You can even arrange for the interest to be fixed for the period of the term, this way the repayments remain the same for the entirety of the deal. This way, both parties know the exact amount required for the repayments for the length of the term. The buyer will not have to qualify like he would when applying for bank finance, the sellers main concern will be can the buyer easily afford the monthly repayments on the property? An Owner Finance arrangement can be set up and moved into much quicker than purchasing a property the traditional way.
For sellers, they can receive their full asking price, losing no money in agent fees or commissions. The seller can also receive a tax break, in view of the fact that he will be announcing a lesser revenue annually, owing to the amount paid in installments, unlike when selling traditionally. The seller could also receive tax benefits, since they will be receiving a smaller amount per year due to the monthly repayment installment schedule, rather than receiving the full amount all at once if a conventional sale had been used. The installment basis also means that the seller receives a steady income per month, until the full amount is paid off. The seller can also charge a higher rate of interest than the banks since the seller’s financing terms have made purchasing a home easier for the buyer. The property will only be on the market for a small amount of time. This means that the selling period is short due to the popularity of the deal amongst buyers, even in this economy.