Benefits of Owner Financing?

Question

We've located a great Duplex that the seller owns free and clear, so I was going to put owner financing on the table.

I was just curious about what the benefits of doing Owner Financing and then refinancing with a bank later Vs. just getting a traditional loan from a bank the 1st?

What exactly is the difference between refi and just getting a traditional loan?

Thanks for any input.

Mitch Messer · Answer

Hi @Austin Keelen. Here are just a few benefits of owner financing over getting a bank loan:

• You get to negotiate the terms (duration, interest rate, down payment)! Try doing that with a bank!
• Owners hardly ever ask you to pay finance points or application fees. Banks want both points and fees.
• Banks require an appraisal, which you have to pay for. Owners don't.
• Speed: Banks can take weeks to make a lending decision. Owners just need a few days.
• Credit: A bank will qualify you based on your credit and any loan they extend to you will show up on your credit report. Owners don't care so much about your credit and their financing won't appear on your credit report.

Also, you seem to be operating under the assumption that you will eventually have to refi. That's only true if the refi terms are better than what you already have. If you structure your owner financing well enough, you'll want to ride that thing until the wheels fall off!

Joshua H. · Answer

Owner financing is my niche.

PROS: Negotiate every detail in the financing. IE down payment(if any), deffer payment (if you agree), no tax paid until the last payment is made. You negotiate interest (if any), contingency clauses such as missed payment, death/medical note transfer, etc.

CONS: The title isn't in your name until the last payment is made or unless you structure it a specific way. The seller can still take out a line of credit if they have the property in their name. The water company still will have the original owner and you have to sign a tenant-landlord agreement to have the bill forwarded to you. The seller could file for bankruptcy as well.

SOLUTION: You have to do your homework to determine if the seller is in a stable position as he/she is likely to do to determine if you are able to make payments. You can also put in clauses in the contract that restrict the owner from taking out liens on the property, but that isn't a for sure thing.

If you get a traditional loan for the property as a personal loan? Interest is going to be higher most likely and the term may be too short. If you mean a FHA, VA, or other home loan then of course an extensive inspection on the home and your personal information. If I missed something guys please let me know! But these are the basics and you should do your own research as well on the property: taxes, title, leins, history, repairs, etc. There are a lot of moving parts and sounds like a lot but it isn't that complicated really.