There are different assumptions about the buyer purchasing property and the seller providing the finance. But leaving the dogmatic belief behind, seller financing is actually quite a creative financing solution for anyone who is going through any changes financially or even personally. But the thing is, buyers using seller financing is not a ‘one size fits all.’
In simple terms, owner financing acts as an alternative for the property or the buyer who falls out of the traditional mortgage loan criteria, but it technically doesn’t involve any human element.
To get a better understanding of owner-financed buyers, let us look at a few examples:
Real Estate Investor
If a real estate investor has bought a property that needs some repairs and decided to get it repaired in order to gain the resale profits. But it applies for a loan; the bank will deny the loan until the property is repaired first. In such a situation, the solution is to seek a temporary owner financing or a short-term private mortgage.
A Single Mom
Let us look at the example of a single mom who purchased a worn-out property by owner financing and only $2000. She lived at the place for two to three years and, in the meantime, made improvements in the equity, later she sold the house for a profit of $45,000, which she used to purchase a house at a better school district for her kid.
The Minority Family
Here’s another example of a minority family who wanted a loan but could not receive it because they did not have a credit score. The reason for this was that they only used cash to make payments rather than using any credit. But, they showed the seller the proof of all the timely payments and rents that they have paid, and on that basis, the family was able to purchase a home for themselves by using installment sale on land contract.
A Self Employed Couple
This self-employed couple had a good credit score and were 20% down, but because they started their own company a year ago, they were unable to provide verifiable income for the past two years, which resulted in them not receiving the loan. But despite that, they were able to buy their dream home by the country with the help of owner financing. They also helped the seller to assign the Deed of Trust and Note to a reputed note investor for cash.
A Retired Couple
A retired couple who was living on their social security income required affordable housing, but they did not want to pay rent; therefore, they decided to locate a mobile home in a 55+ community. But, to their dismay, they found that circa 1974 mobile homes were not in the lender’s age restrictions. Hence, the solution they found was owner financing.
These were some of the examples of the buyers who have purchased a property with the help of seller financing. When a bank says ‘No’ to you regarding a regular home mortgage loan, seller financing is the best possible alternative that you have. If you do not have a great credit score, or a verifiable income for the last two years, or aren’t 20% down, owner financing is the option that still remains. Besides, the sellers who want to move their property quickly get a great opportunity due to this as it attracts good deals.