2021 saw the fastest increase in home prices than ever before in history. And no one knows if and when the market will cool down and prices will stabilize.
As of 2022, prices are still on the rise and homes are flying off the shelf, keeping inventory at an all-time low.
It’s great news for sellers. But most first-time homebuyers are currently priced out of the market.
This is leading many people to look into owner financing as a way of finding cheap Chesterton Homes for Sale. This method of handling your mortgage is non-traditional and can lead to better deals for both the buyer and the seller.
Wondering what owner financing houses are, and how this strategy can lead to finding a cheap home for sale? Keep reading below to find out now.
What Is Owner Financing?
Owner financing, also known as seller financing, is the process of the current homeowner (the seller) providing you a loan to buy their house.
Rather than getting a mortgage from a bank, and making payments to the bank, the seller becomes the bank.
You will still sign a contract and get the title of the house in your home so that you own it. But the contract will say that you owe the seller money, and you will make monthly payments, with interest, directly to them.
So no bank is involved when dealing with owner financed homes. It’s a peer-to-peer transaction that occurs most frequently with family members. However, it can be done with anyone interested party.
Usually, owner financing takes the form of a mortgage, but it could also be set up as a land contract or a lease-purchase contract.
And the seller can finance the entire purchase of the house. Or, if the buyer can get a small loan from the bank, the seller can finance the remaining portion of the purchase price.
In this scenario, the buyer would have two smaller monthly payments rather than one larger mortgage payment.
Owner Financing Benefits for the Seller
So why would sellers deal with the hassle of becoming a bank and taking monthly payments, rather than sell their home and get paid upfront?
There are a few key reasons many sellers are interested in this strategy. For one, it’s used most often in a buyers market.
If the home is sitting on the market for a long time, and they just need to offload it, they could offer owner financing to attract more buyers.
Second, it provides them with an opportunity to make even more money over time. For example, if they sold the home in the traditional manner, they might sell it for $300,000.
But if they financed the home directly to the buyer on a 30-year loan at a 5% interest rate, they would end up making $579,000 over the life of the loan, thanks to the collection of interest.
If the owner of the property doesn’t need the money from the sale upfront to buy another house, then offering seller financing is an excellent way to make passive income and hedge against inflation.
Likewise, it also becomes a reliable stream of income for the seller. This is why many people who are approaching retirement age consider this strategy to bolster than monthly income.
Owner Financing Benefits for the Buyer
So why do buyers find this strategy so attractive? Because many buyers cannot qualify for a traditional mortgage through a bank.
They might not have a long enough employment history. Or their credit score is very low.
Or maybe they don’t have enough money for a traditional down payment and need a more flexible solution. Luckily, with seller financing, these types of buyers can still buy a home, build equity, and increase their overall wealth long-term.
Buyers can get into a home with little or no money on a down payment. Plus, closing costs are very low to handle this transaction as well.
While many buyers will eventually refinance their owner financing into a traditional mortgage, some will keep the original loan as long as possible, since the favorable terms work for both parties.
The Flexibility of Seller Financing
Another benefit of seller financing is how flexible it is. Buyers and sellers are free to negotiate the terms of the deal before the contract is written.
The seller could require a down payment, or they could waive that requirement altogether. The interest rate and payoff schedule can be negotiated. So, the two parties can work together to create a deal that benefits them both.
There are some state restrictions. For example, a few states prohibit the use of balloon payments. But other than that, most things are flexible.
Finding Cheap Homes for Sale by Owner
So how can you use this financing strategy to find cheap houses for sale? Individual sellers who are willing to offer this type of financing usually have a reason to sell the house quickly.
They are motivated to offload the property and may be willing to take a discounted purchase price, especially since they will make more money over the long term.
You’ll often find these sellers have inherited a property or have gotten divorced and are moving out of the area. You can ask your network to see if anyone knows someone with a property they don’t want.
Alternatively, there are companies that will offer you a cheap house for sale that handle their financing in-house. This is usually in the form of a lease agreement or a rent-to-own plan.
You live on the property and make monthly payments. Once you have paid a certain amount, you can officially buy the property and transfer ownership to your name.
You can click here for more information on companies that offer this service here.
Find Your New Home
Owner financing can be an excellent strategy for both home sellers and buyers. And for buyers in a competitive market, it can be the strategy you need in order to find cheap homes for sale.
So, what are you waiting for? Go find a seller ready to finance their home for you today.
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