Owner financing, also known as seller financing, offers potential home buyers an alternative to the traditional bank loan. Essentially, it is a purchase agreement between an independent seller and buyer, with no involvement from a bank or credit union. This option is generally preferred by buyers and sellers who are looking to expedite the purchase process and those who are looking for a bit more flexibility in terms of payment plans and negotiated rates.
Fewer Qualification Restrictions
A seller in Brevard County who is offering owner financing will not require the same level of qualification restrictions set forth by a bank or other lending institution. While sellers may ask for an official credit report, they will often accept much lower credit scores than a bank. In today’s economy when many families and individuals are still recovering from financial difficulties that may have negatively impacted their credit score, these more relaxed loan requirements can be very appealing.
Financial Benefits of Owner Financing
In addition to the reduced restrictions there are a number of potential financial benefits for buyers utilizing seller financing. For example, the absence of a third party (i.e. the bank or credit union offering the loan) means a buyer can save a significant amount of money in typical closing costs that would normally be paid to the bank managing the loan. Considering that closing costs can be as high as 5% of the total cost of the home, buyers can potentially save thousands of dollars with this option. Moreover, many sellers will offer buyers some flexibility in terms of the down payment, accepting it in a few installments rather than one lump sum.
Drawbacks to Owner Financing
There are certain risks that buyers should take into consideration before agreeing to an owner financing contract in Brevard County. For example, a seller might overprice the property or charge exorbitant interest rates to take advantage of those who need to purchase a home, but who may not qualify for a loan with a bank. Moreover, sellers who draw up owner financing contracts often make the loan repayment plan shorter than a traditional bank would, often as a measure to protect themselves from potentially unqualified buyers. This forces buyers to pay back the loan more quickly, which could prove to be difficult.
Negotiating the Asking Price
In order to ensure that they are getting a fair deal, buyers should be sure to conduct extensive research into the average property value in Brevard County before signing on for owner financing. If a seller seems to be pricing a home far above the average in that particular area, buyers should be as aggressive as possible about renegotiating. These negotiations need not be hostile; in fact, a seller might be expecting a buyer to “talk down” the initial asking price.
The same goes for interest rates. One of the benefits to owner financing is the fact that the kind of interest rate charged—whether it is fixed or variable—is flexible. Buyers should take advantage of this fact and be sure that the interest rate they are being asked to pay is in line with their credit rating, down payment, and financial holdings. This can also deflect any potential problems down the road: if a buyer agrees to an exorbitant interest rate and experiences some financial difficulties, he or she may end up defaulting on the loan later.
Those considering owner financing should be sure to consult with legal and financial professionals before embarking on negotiations. While there might be a small consultation fee, it can be well worth the money saved in inflated interest rates and payments down the line and will still be less than any fees paid to a bank in a traditional loan agreement.