The Definition of Owner Financing-Owner financing in a nutshell

By: Paul Sharp
Submitted: 2008-12-01 12:22:11
Print this article | Tell a friend | For publisher |

Rating:

 

In simple terms owner financing means the seller helping the purchaser to buy the house. The vendor can finance one part of the amount or at times even the full amount based on the buyers requirement. This method is used when it is difficult to obtain a loan.

Banks follow number of rules and regulations before approving loans. The process is lengthy and time consuming. The banks are raising bars for loan eligibility which is making it more difficult to acquire finance. Owner financing comes to your rescue at these times.

Loans are rejected due to number of reasons. It may be due to lack of proper documentation, poor credit ratings, time constraints etc. Any of these can prove counterproductive while acquiring a loan.

Owner financing helps unqualified buyers to get loans to buy house. This involves comparatively less paper work then normal bankers. It is just a step forward to assist buyers to possess the house fast.

Owner financing can be called Balloon Mortgage. The major advantage of this type of loan is repayment period can be extended as per the requirement of the borrower. The principal remains outstanding and has to be paid in lump sum. This whole sum at the time of maturity is called balloon payment.

The terms of the loan is provided in the contract. All details pertaining to the loan such as rate of interest, balloon payment date and amount, loan terms, instalments etc are mentioned in the deed. Instead of paying to the bank the amount is paid to the owner.

Another advantage is in case a loan is acquired while under owner financing plan, refinancing could be done at any point of time without penalty; there is no need to wait till the last balloon payment date.

A loan term can be extended, but an additional fee should be paid to change terms. The contract can be rewritten based on the down payment or equity. The repayments should be made without defaulting, to own the property at the end of the balloon date. A sincere effort to purchase the house should be shown at the buyer’s end, only then owner financing works.

This is totally different from rent to own house scheme. In a rent to own scheme the renter is engaged for a stipulated period of time where at the end of the term he has to acquire loans to buy the property, whereas in a owner financing scheme you can become the owner of the house with the help of the seller who offers a finances.

Benefits like tax breaks, equity building and other financial profits are enjoyed only by house owners. Owner financing only can help get such gains.

Unlike banks owner financing is a highly flexible scheme where the buyer’s terms can be entertained. The ultimate goal is to help the buyer and free them of their financial burden. The loan period ranges from a minimum one year to a maximum of ten years. Though, this can be extended on the buyer’s request.

Article source: Expert Articles