Owner-Financing Home Mortgages – Risks and Benefits

Since the housing market is at an all-time low, many homeowners are considering the option of financing their home to a buyer themselves, rather than waiting for the rare buyer who can still get a good loan in this economy.

Benefits

The benefits to owner-financing home mortgages are plenty. In our economy, homes are sitting on the market for up to a year. If you are willing to finance your home yourself for a buyer who cannot get a conventional loan, or to someone in your close circle of friends and family who you can trust, you could really help out a family that needs somewhere to live but can’t, or doesn’t want, to take out a bank loan.

Money is perhaps the biggest reason to finance your own home. Individuals can often charge a higher interest rate than is going in the current mortgage market, since they are taking on more risk. This is especially true if the buyer does not have really great credit. They will agree to a higher rate because they are thankful that you are giving them the chance that has been denied them through banks, credit unions, and other lenders.

If your home is in danger of slipping into foreclosure, a deal like this could save your home from being lost completely. If the buyer can give you enough money up-front to catch your mortgage up-to-date, then you could allow them to pay slightly more than your monthly payments. This saves your home and gives you a little extra money to pocket each month. You do still have to move out of the home with this option, but it saves your credit from the devastating hit of a foreclosure.

Risks

The possible monetary windfall from financing out your own home comes with enough risks to dissuade some people from the deal. The obvious downfall is that you are likely dealing with people who have a history of defaulting on their obligations, and you will have a mess on your hands if this happens again. As long as you do the paperwork correctly and contracts have been signed, you will legally have the right to reclaim the home and then either occupy it yourself once again or sell it off, hopefully in a better market at that time. There are uncomfortable circumstances that come with this legal duty, such as having to evict the buyers from the property yourself. No one wants to have to do that, especially if there are children involved or you know the people personally.

Another risk is serious damage to the home. If the buyers trash the home, it is their property in the future and you can do little about it, but if they suddenly pick up and move then a damaged home with greatly reduced value is on your hands.

Before deciding on owner financing home mortgages, it is important to consider all of the risks and benefits and decide if it is worth it. If you can find buyers that you know personally, they will be less likely to harm the property and will be a lower risk.

How to Finance Home Renovations

Renovations can have a significant impact on the value of your home. Moreover, with home improvements you can also enhance the energy efficiency of your home making your home more environmentally friendly while giving you access to a range of provincial and federal rebates. Nevertheless, these enhancements can also be very expensive so you may not know how to finance your home renovations. Fortunately, there are multiple options available to you.

Credit

Credit cards are the most common form of financing available to homeowners. While paying for renovations with credit means that you can pay off as much or little of the principle every month, they often carry hefty interest rates. Credit cards are also convenient with respect to buying supplies for your home renovation; but many people prefer not to rely on credit to finance major expenses like renovations.

Loans

Bank loans are straightforward and offer better interest rates than credit cards. Repayments are fixed and you can often negotiate a monthly payment that will not stress your budget too much. However, your bank will likely need some kind of collateral before you will be approved. If you have equity in your home, you should easily get approved for a loan. In fact, home equity loans often have the lowest interest rates, making them the ideal solution for financing home renovations.

Personal Line of Credit

A line of credit is somewhat of a cross between credit card financing and loan financing. Personal lines of credit will often have higher interest rates than loans, but lower rates than credit cards. Repayment schedules are also more flexible for lines of credit than bank loans, so this type of financing is often ideal if you’re not sure how much you can pay off each month. With a line of credit you can simply pay your minimum or even the entire balance depending on your financial situation that month.

Re-Mortgaging

Refinancing your mortgage is another option available for home renovation financing. Your payments will be spread out over the duration of your mortgage, and interest rates tend to be more reasonable. However, your access to finances will be dependent on the assessed value of your home, and you may incur legal and appraisal fees as well. Re-financing is more appropriate for large scale renovations; whereas credit cards, bank loans, and lines of credit are more suitable for more minor renovations.

Whatever financing option you choose, it is important to carefully consider your monthly budget before going forward with renovations. Especially if you plan to remortgage your home or use your home as collateral against alone, you open yourself up to the risk of losing your home if your income is diminished for any reason. Regardless, with careful planning and consideration, there are many appropriate and manageable financing options available to home owners.

100% Financing Home Loans

What do 100% Financing Home Loans Mean?

These loans refer to the loans that do not require borrowers to provide for a down payment.

The usual down payment of a house is five to ten percent of the actual amount. As such, if you are planning to get a mortgage loan for a house that amounts to five hundred thousand dollars, you ought to prepare to provide a down payment between twenty five thousand to fifty thousand dollars.

However, if you avail of a mortgage loan that provides 100% financing- that means that you won’t have to prepare any down payment fees. But you ought to keep in mind that even if you are availing of a 100% financing loan, you will still have to pay some extra cash for the application and security purposes of this kind of loan.

100% financing home loans are abundant these days. You can easily find one in the Internet. Note that there are also many kinds of no deposit home loans. Among the most prominent of these types are the mortgage loan which also covers the cost of closing on the property, and the mortgage loan that provides the borrower extra cash for furnishing and/or repairing the home.

The Pros and Cons of a No Deposit Home Loan

A No deposit home loan or one that provide 100% financing is applicable for people who are not capable of raising a down payment of five or ten percent of the mortgage loan, but nevertheless, needs to buy a home as soon as possible. This is especially the case for newly wed couples or those who have suffered from losing their homes due to natural disasters or accidents. 100% home financing is also recommended for people who plan to invest in real estate properties.

Among the many benefits of getting 100% financing in home loans is the fact that you can quickly purchase the home of your choice without worrying for the expenses. Also, you won’t need time to prepare money for the necessary down payments. With a no deposit home loan, you can invest in a home and not worry about the possibility that you won’t be able to afford it later when the price of real estate increases. To add to that, some no deposit home loan packages offer financing for other expenses associated with purchasing the house like retrofitting.

However, 100% home loan financing also have some drawbacks. Among these is the fact that this kind of mortgage offers a higher interest rate than the normal mortgage loans. This is primarily because the more money being lent to you, the higher the interest in the long term. Another is that some banks charge extra closing fees such as Higher Lending Charge. Also, you have to know that it is far more difficult to obtain a 100% home financing loan that getting a normal mortgage loan due to the stricter lending criteria.

Last but not the least, getting a no deposit home loan puts you at risk of negative equity. This happens when the value of the home you have purchased decreases after your lender has given you full financing on it. In such cases, the bank or the lending company will request additional fees from you.

Owner Financed Homes – More Common Than Ever

With the recent downturn in the economy, it has become a need for home sellers to find alternative ways to sell there home. Owner financing, also known as seller financing or owner-will-carry is the newest trend in selling homes. The basics of owner financing are simple at the core, the seller essentially acts as a bank for the buyer for a given amount of time.

The bonuses are two fold; one the seller opens up the property to a large number of buyers that cannot get conventional financing, typically these are buyers that have credit challenges such as a previous foreclosure or they are paid through self employment. Due to the recent changes in lending guidelines, someone who would easily qualify for a home 3 years ago can no longer qualify even if they have perfect credit.

There is a well know article on the internet stating that these types of transactions are rare, and incredibly hard to come by. This article is of course from 2002. These types of transactions are very common as of 2010. In the past, most home owners who would be willing to sell a home on through owner financing would ask for almost 50% or more of the homes value as a down payment. This was to compensate for the fact that they expected the home owners to make payments over a 30 year term. This is just ridiculous by the standards of today.

Almost 90% of all owner financing transactions occur now because of investment decisions made in the past by house flippers or people expecting the value on their primary home to increase. This has caused a large amount of homes to come onto the market that are nearly paid off, but are no longer wanted due to taxes on the property or an inability to find a renter. Although money may still be owed on the property, the down payment will more than payoff the underlying mortgage.

So what are the terms? This is a question that I get asked on a daily basis from buyers looking to purchase owner finance homes. Of course each home seller is different, but the typical terms are 10% down payment, a 5 year contract with a full payoff expected at the end of the contract and monthly payments on the home amortized over 30 years. Standard practice is to have all payments made through a third party escrow service. The escrow service ensures that all payments are made on the buyers behalf.

It’s a shame that there is so much false information about owner financing on the internet. Most of this information is out dated and paints a very bleak picture about the rarity of owner financed homes. The truth is the modern real estate market has changed and most working realtors like myself that have changed with the market are doing just fine. Almost all currently working real estate agents have worked with an owner financed transaction. They are an excellent alternative to buy and sell a home without the need for bank approval.

What It Means To Buy Owner Financing Homes

These days, with the overabundance of existing homes already on the market for more than 90 days, conventional methods are simply not working like they used to. Add into the mix the ridiculous numbers of foreclosed homes and you wind up with a stagnant housing market. Even with sterling credit, you will jump through hoops trying to get financing to purchase a home and still wind up unapproved. The solution many are turning to is purchasing owner financing homes. This is one area that could use a change, as the average fair market value for a home today is over one million, but even with being listed at half that value, are still not selling.

You have to look for those that are listed as home for sale owner financing, or for sale by owner, in the local newspapers and websites. This is the best way to find owner financing homes. If you talk to a real estate agent, they may not know of any, and just approaching a seller to ask if they can finance the sale for you will probably not work out. That said, before you start your search, it may be a good idea to learn how it works, and the benefits that comes with owner financing.

What is Owner Financing?

Whenever a home for sale carries that added term “owner financing”, it means that the purchase price, minus the down payment, will be part of a financial contract that exists solely between the seller and the buyer. The buyer negotiates with the seller a purchase contract that is binding, and allows for a payment plan over time that is put towards the final purchase of the home.

Just like bank loans, the seller and buyer agree to an acceptable interest rate, monthly payment amount, and term of loan. In most cases, these are also called rent to own, with option to buy deals, where a portion of the monthly rent is put towards either the purchase price or the down payment, depending upon the buyer and seller’s financial position. A security instrument will be created, listing all details of the sale agreement, and will be filed with the court as would any other real estate transaction, for the protection of both parties.

Types of Owner Financing

In the case of owner financing homes, the seller will often carry the mortgage for the entire purchase price, less the down payment. This is known as an all-inclusive mortgage. When a buyer cannot get a mortgage loan on their own, this is often the best way for them to purchase a home, and the resulting loan is often in the seller’s name, rather than the buyer’s. All payments are made to the seller, who then uses them to repay the loan.

Lease purchase agreements are another way to handle this kind of real estate sale. This means that the seller is giving the buyer an equitable title, and is leasing the property to the buyer. The negotiated lease payments or a portion of each payment is put towards the purchase price, less interest, until the balance is paid, and the buyer receives full and clear title to the property.

Benefits of Owner Financing

For the buyer, there are obvious benefits to this kind of purchase agreement, especially if their credit rating is not the best. The loan can also be tailored through negotiating with the seller to an affordable and reasonable monthly payment, down payment and interest rate that you know you can afford. You also get possession of the property faster, and you probably will not have to pay any extra fees or closing costs.

For the seller, the owner financing homes program means that you will be able to command the full market price for your home, and you will not have to pay the full taxes on the sale that year. With an installment plan in place, you only have to pay taxes on the income from that sale collected that year, not the full amount all at once. You can offer the buyer a lower interest rate than any lender, making the sale even more attractive and it will most likely spend less time on the market than it would through an agency.