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Factors Influencing Owner Financing

Owner financing is not a familiar concept for most people. Property owners who are not in the business of selling property may think that taking on the financing for a real estate purchase is risky, and would not want to consider it. Buyers who may qualify for a bank mortgage may prefer to stick with conventional lending options. But because of recent trends, Easy Road Home has observed the idea of owner financing has become more attractive for a variety of reasons.

The first factor that may influence the decision to use owner financing is speed. Buyers don’t have to go through the rigmarole of getting bank approval, and sellers can flip property faster and at attractive prices. Even for property owners who are just selling the one item, the uncertainty of the market favors selling as quickly as possible before the market takes another downward turn. Moreover, maintenance and home repairs are more quickly passed along to buyers, saving money for the seller. For buyers who will probably not qualify for a conventional mortgage, owner financing spares them the pain of rejection.

The second factor that can affect the decision to use owner financing is tax issues. Because a seller agrees to accept payment on installment over a period of years, there are tax advantages to spreading out the money rather than getting it all at one time.

Another factor that comes into play is the potential for making more money in the long term. Lending at an interest negates any profit loss from cost of money, and the seller may even come out ahead even accounting for cost of money over several years. This potential is limited by state law which sets a cap on interest rates, but it all works out in the end even in the event of foreclosure. Most owner financing agreements would have a provision that in case the buyer fails to abide by the payment terms, the property reverts back to the seller.

Overall however, the attractiveness of owner financing depends on how the real estate market is performing. A buyer’s market makes it a viable option, while in a seller’s market there is very little incentive for sellers or owners to provide the accommodation.