Using Owner Will Carry Financing to Buy a House
Owner will carry refers to a financing strategy to purchase real estate. Homeowners can offer whole or partial financing of the purchase price. Offering partial financing can help buyers obtain bank financing, while offering to finance the full amount can help sellers obtain the full asking price.
Owner will carry has become quite popular because of lending restrictions. Many people who want to buy houses cannot qualify for conventional home loans due to credit problems or insufficient down payment. This strategy also benefits homeowners because bad credit borrowers are willing to pay a higher amount for the property to obtain seller financing.
Real estate investors have offered seller carry back mortgages for years, but homeowners are starting to use this option to attract buyers. One group that is particularly interested in seller financed properties is homeowners who have lost their property to foreclosure.
Foreclosure wreaks havoc on credit reports and often prohibits borrowers from qualifying for credit for 2 to 3 years. Buying houses on contract helps homeowners establish a solid payment history and can aid in rebuilding credit. After a few years, borrowers can refinance the loan into a conventional mortgage as long as they engage in credit repair strategies.
Today, banks rarely grant loan approval unless borrowers\’ credit score is 660 is higher. Borrowers should strive to reach scores of 720 or higher to obtain the lowest rate of interest. FICO scores can be improved by lowering debt to income ratios and paying bills on time and in full each month.
Both buyers and sellers will need to conduct due diligence to minimize risks. Offering owner will carry financing to individuals with bad credit or those who have entered into foreclosure can be risky. At minimum, sellers will want to conduct a background check, obtain credit reports, and verify buyers\’ income to ensure they can meet loan obligations.
Buyers should have the property inspected and obtain a real estate appraisal to determine fair market value. It is also smart for buyers to review property records to make certain the home does not have liens or judgments attached or entered into foreclosure.
Seller financed loan payments should be paid using a personal check. Private sellers typically do not report payments to credit bureaus. It is important to retain payment records as they will be required by banks when applying for a mortgage loan.
Owner will carry financing offers a win-win for property owners and buyers, as long as both parties conduct due diligence and enter into legal contracts. It is strongly recommended to have sales contracts and loan documents executed by a real estate attorney.
Seller-financed loans should be secured with a promissory note that records the purchase price, interest rate, down payment amount, number of payments, date of payments, late fees, penalties, and maturation date.
Buying real estate is one of the largest investments most people make. It is crucial for buyers to understand how owner will carry financing works and enter into legally-binding contracts to limit risks.
Author Bio: Learn more about using owner will carry contracts to buy or sell property from California real estate investor, Simon Volkov. He has published numerous articles covering the pros and cons of buying houses with creative financing at www.SimonVolkov.com.
Category: Real Estate
Keywords: owner will carry, seller carry back mortgages, promissory note, seller financed loans, foreclosure