Are there pitfalls for owner financing?
Answer by Heather Faires:
There are many benefits to owner financing to both home buyers and sellers. It allows a seller to market their house to a wider range of buyers, get a better sales price and receive residual income. In addition, a home seller can sell the mortgage note after a period of time and cash out. It allows a home buyer to purchase a house if they've been denied a traditional mortgage due to strict bank requirements. The cons of owner financing depend upon whether you are the one providing the financing or receiving it. If you are the one providing the owner financing, the potential pitfalls are:
- Possibly being unable to purchase another house due to debt to income ratio.
- Dealing with the hassle of filing foreclosure if your buyer doesn't make the mortage payments.
- Repossessing a house and having to deal with cleanup.
If you are the one receiving owner financing, some possible cons are:
- Higher interest rate
- Larger downpayment
- Paying above market value
If this is an option you'd like to explore, make sure you use a title company to record the transaction and deed to prevent a potential legal issue regarding ownership of the property. The seller of the house should be recorded as lien holder to insure full payment if/when the buyer decides to sell.