A home is part of the American dream. But getting into a new house is often a function of the financing available to you. And the financing available to you isn’t always as attractive as you would like.
Which is why owner financing is such a great option for some buyers. How does owner financing homes work? Here’s a look at the ins and outs of buying a home with owner financing, plus a few tips on how to navigate the challenges of seller financing — if that’s the route you end up going.
How Does Owner Financing Work?
Just as the name would suggest, the owner provides the seller with financing. There’s typically a down payment involved, and then the buyer gains access to the house in exchange for financing terms from the seller. Those terms will outline the interest rate, the monthly payment and the length of the loan, just like with a traditional mortgage loan.
The terms of the loan are outlined on a promissory note, and a mortgage is then filed with the appropriate local authority. Owner-financed loans are typically shorter in length than more traditional mortgage loans. For example, the loan might call for small monthly payments followed by a balloon payment less than 10 years after the loan term begins. The idea is to make monthly payments long enough to see the home value increase so the buyer can finance through a more traditional channel.
Different Types of Seller Financing
There are different types of seller financing. An all-inclusive mortgage basically takes the place of a traditional mortgage altogether. A junior mortgage helps the buyer with additional financing after the buyer takes out a loan for 80 percent of the home’s value through a traditional lender. A lease option allows the prospective buyer to rent the property while some portion of the monthly rent goes toward a future purchase of the property. And an assumable mortgage allows the buyer to take over an existing mortgage from the seller.
The right type of owner financing for you is going to depend on your unique situation and the situation of the seller providing the financing.
Pro Tips for Seller Financing Situations
The best way to handle seller financing is to approach it just like you would a traditional loan. Fill out an application, secure the loan on the home, include a down payment and get a professional to write up a contract. This is to protect both parties — both buyer and seller. The more you can document and the more you can do to outline terms and make your loan official, the better it’s going to go for everyone involved.
Find Experts Through CENTURY 21 Core Partners
When you choose to work with CENTURY 21 Core Partners, you’re choosing a network of real estate professionals who can help with every aspect of a home sale or purchase. We may not be mortgage lenders or real estate attorneys, but we can connect you with experts who can provide clear explanations of owner financing — and whether or not it’s a good idea for you.
When you’re interested in purchasing or selling a home in the York area, make sure you have the team that knows York and its real estate market on your side. At CENTURY 21 Core Partners, we’re always here to help.
Contact us today about buying or selling a home in York, PA.