The thing of the past became the new trend as owner financing to solve the problems of credit crisis, struggling economy, and declining real estate market since 2010.
Sellers can attract buyers and even save them from transacting with banks by financing a property which they intend to buy. The increasing “DECLINED” mortgage applications would spare buyers to transact with banks if they agree with owner financing. However, before you agree to be “the Bank” carefully consider the downside in providing this creative financing scheme.
Time is Money – Is a drawback for the seller. They wait for a full payment of cash at closing. Using “two-step mortgages” can reduce the time delay of payment. Using provisional seller financing techniques also helps to optimize a succeeding sale of payments to a note investor.
Honey, Did You See That Check? – An amortization schedule can precisely estimate the interest, principal and the remaining balance. The annual 1098 mortgage interest report is prepared. Sellers leave all this to a professional and make use of outside servicer.
Here Comes Guido – The seller becomes the bill collector. The main concern of the seller is when the buyer, maintaining the property, fails to keep the current real estate taxes, violate the terms of financing arrangement or lapse the property insurance.
No TARP for You! – When the buyer fails to pay the seller, it will risk on initiating the foreclosure proceedings. With time and money today, market foreclosure has risks that the property’s worth less than its original market value. There’s no government TARP lender assistance plan for an individual seller.
Who’s On First? – As soon as the property is bought with owner financing and the seller still owes funds. The buyer and seller should be concerned with under lien. The note investor will pay the sellers under lien in future payments of purchase.
They Offered How Much?! – Seller can put up for sale the note to an investor for cash when they are tired of monthly dues. They will sell the property with discount to a note buyer. The discount depends on the payer credit, equity, property type, other term and interest rate. (Read more at Structuring Notes for Top Dollar Pricing)
Of course it’s not all bad.
By the means of owner financing and some help from qualified professionals the buyers and the sellers can have the best deal (refer to 10 Advantages to Using Seller Carry Back).
