Owner Financing
Owner financing is an agreement between the seller of a property and its buyer in which the seller agrees to finance a portion of the purchase price.
In rare cases, an owner financing agreement might be struck in which the seller agrees to finance 100 percent of the value of the property that he or she is selling. A contract is drafted that stipulates the terms of the loan, including an interest rate, term of the loan, monthly payments due, and other terms like those found in a mortgage agreement made between a buyer and a bank or other lending institution.
It is rare, however, for a seller to offer to finance 100 percent of the purchase price. Usually an agreement is made in which the seller agrees to “hold a note” for an agreed-upon portion of the selling price as a loan that the buyer will repay over a stipulated period of time.
A case study you can profit from . . .
John and Cynthia Cobb, a young couple, wanted very badly to buy a house that was down the street from Cynthia’s parents’ suburban home. They had recently graduated from college. Though they both had jobs, they owed student loans and felt that they could not expect to obtain a mortgage for the full asking price of the house, which was $355,000. Their parents agreed to help them by giving them about half of the asking price in cash, a casual loan that they would be free to repay in future years. That left them with the need to borrow about $175,000. They approached Tom, the home’s seller, to discuss whether he would finance that amount for them, in effect “holding a note” on the house, which they would repay in regular monthly payments, much like a conventional mortgage.
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