|By David Pilley on July 22, 2011
A traditional mortgage consists of a loan given by a bank or lender. Getting approved for this loan may be difficult if you have poor credit or you are self-employed. If the bank does not approve you for a mortgage loan, it doesn’t automatically mean you can’t purchase a home. You will have to find a creative form of finance. One alternate way of getting around a bank loan is finding an “owner financed” home.
An owner financed home leaves out the bank as a middleman. The owner of the home not only offers the property for sale, he/she also offers the mortgage loan. An owner financed home can come with a mortgage entirely from the owner or a “junior” mortgage, which involves a portion of the loan from the owner and a portion from the bank. The seller of the property holds the title, and he/she acts just like a bank would in setting up a monthly payment schedule.
The transaction on an owner financed property will often be quicker than a traditional home purchase because a traditional purchase also depends on buyer qualifications and appraisals. There are also fewer closing costs with an owner financed home, and most of these involve the seller. An existing loan on the home will need to be paid off, and if you use the services of a real estate attorney for paperwork, there will also be fees. With any home, traditional or not, it is important to have an inspection prior to purchasing.
With an owner financed home, it is important to ask a lot of questions. Why is the owner selling the home? How is the neighborhood? Is the local government planning on constructing an Interstate highway nearby? You might be seeking an owner financed home because you don’t qualify for a bank loan, but watch out because the seller might be offering self-finance on a home that is difficult to sell. The buyer of an owner financed home will also be required to pay a larger down payment than a traditional home. Often times, the seller will ask for 20% of the mortgage upfront, if not more. Each seller is different, so you really need to know what you are looking for before you buy it.
There are many different ways to look for owner financed homes. One, you can call a local real estate office and request a listing. You can look in your local newspaper or seek out homes with “for sale by owner” signs in the front yard. There are also a couple of websites, sellfinanced.com and ownerwillcarry.com, that have listings of owner financed homes and apartments for rent or sale across the country. If you are looking for a home but you are denied a loan from the bank, alternate options like owner finance are there for you to explore.