Saving for a down payment can be a difficult and time-consuming task, but there are options for financing a home purchase other than saving or the traditional borrowing options. One option that is becoming more popular is owner financing, and though it may be intimidating to ask the seller to help you finance the purchase of their home, it is certainly an option worth exploring. Here are a few tips to help you successfully negotiate an owner-financing purchase.
What is Owner Financing Purchase?
Owner financing is a mortgage or lending option whereby the existing homeowner lends a portion (or in the case where no mortgage exists on the property, the entire amount) of the purchase price of the property to the buyer. The interest rate, monthly payments, and terms of the loan are negotiated between the buyer and the seller, and the loan is recorded to protect both parties.
Is it a Viable Option?
Most sellers are not in the real estate industry and so may not even be aware that this option exists, and most of the time if asked they will probably reject the idea. In most cases, you will have to convince the homeowner of the benefits they receive from this financing option.
Benefits of Owner Financing
There are a number of benefits to a seller in this type of transaction. Here are just a few that you can use to convince the seller that this option may be in their best interests.
- Potential Tax Breaks-Because the value of the home is being paid out over time, this means fewer taxes being paid on the profit made on the home. Working out the actual figures may help the seller see the benefit of this deal.
- Monthly Income Increase-In addition to the tax breaks, having the value of the home paid out to the seller over time creates an additional income, and in most cases it can add up to a considerable amount in their monthly revenue.
- Higher Interest Rates-Because the seller is essentially the lender, they can determine the interest rate, within the legal limits, and it may mean a greater profit for them in the long run.