Owner Financed Real Estate Transactions

More stringent credit requirements and higher down payments are becoming the norm for most banks, so many sellers are offering to finance the sale of their property. Owner financing works  the same way as conventional financing with a few major advantages/disadvantages.   Essentially, the seller acts as the bank.  All of the terms of owner financing are negotiable, subject to specific state regulations and usury laws.  The seller will transfer the title to the buyer and have the buyer execute a mortgage and note in favor of the seller as security for repayment.  Some sellers will require a lower down payment than most banks, but may charge a higher interest rate.  Also, sellers who owner finance the sale of their property typically do not extend long term mortgages (ex. 30 years).  One major advantage to owner financing is that closing cost tend to be lower for the buyer.  Unlike banks, owners who extend financing often times do not not charge the buyer origination, processing and other miscellaneous fees at closing.  Owner financing is an attractive means to finance the purchase of real estate when the buyer cannot obtain financing through a bank, and when the seller owns their property outright. Because most mortgages have what's called a "due on sale clause", sellers who have existing mortgages on their real estate cannot offer owner financing without bank approval or by having the buyer assume their mortgage.  Sellers and buyers who want to utilize owner financing for a real estate transaction are advised to seek counsel prior to entering into or executing any owner financed real estate contracts, mortgages or notes.