Owner financing, also known as seller financing, is when the homeowner carries the financing for the buyer. In other words - instead of going to a lender to get a mortgage on a house, the payment is arranged directly with the owner of the house. This can be done a variety of ways, including lease-to-own programs, transferring the deed, land trusts, etc.
Prior to the real estate bubble burst around 2007, lenders accepted almost everyone for a home loan. As a result, it inflated the market and led to one of the worst real estate declines in U.S. history and millions of foreclosures. Now banks are incredibly cautious about handing out mortgages and no longer offer subprime or stated income loans. In order to qualify for a loan now, it requires near-perfect credit and a lot of due diligence on the bank's part. The unfortunate reality is that many people do not have good credit and cannot qualify.
Most areas throughout the U.S. have a residential real estate inventory of 6 to 9 months. This means the seller typically has to wait this long before his or her home sells. The reason for this 6 to 9 month wait has nothing to do with a lack of interested buyers - there are many of them. It has to do with a lack of buyers that can qualify for a bank loan. Bank loans are no longer given to people with a credit score of under 640 or to people who need to state their income. This makes it impossible for many Americans to qualify for a home.
How many Americans can't qualify for a loan? According to FICO, about 60 Million can't qualify because they have a credit score below 640. The U.S. Census reports at least 20 Million sole proprietorships in America - all of these people need a stated income loan... but, of course, stated income loans are dead. In other words, over 80 Million Americans cannot qualify for a traditional mortgage. Now add in all of the Millions of foreclosures coming on to the market every month. It creates a situation where there are many eager buyers, but they have no ability to buy because they cannot qualify with the bank. The handful of homes that are sold go to the handful of buyers who can qualify. Those who can qualify are nowhere near the number of homes on the market - so, homes sit on the market for months and months. This is why owner financing is being used more and more - because homeowners are desperate to sell and unqualified buyers are eager to buy.
Owner financing enables the buyer to contract directly with the seller to acquire their home. There are multiple methods to make this happen. The top five are: lease purchase, lease option, owner carry, mortgage assumption, and mortgage payment assignment. If you are considering owner financing as an option, be sure to do your research and seek legal advice. These structures have to be set up correctly - otherwise, you could end up with some bad consequences.
Owner financing is an excellent option in this stagnant market. If you are looking to sell your home, it could be a way to move it much faster - and it is often the only option (other than foreclosure) if you are underwater on the mortgage. If you are looking to acquire a home and have less-than-perfect credit or can't qualify for a mortgage, it is a way to get into a home quickly with very favorable terms.
Prior to the real estate bubble burst around 2007, lenders accepted almost everyone for a home loan. As a result, it inflated the market and led to one of the worst real estate declines in U.S. history and millions of foreclosures. Now banks are incredibly cautious about handing out mortgages and no longer offer subprime or stated income loans. In order to qualify for a loan now, it requires near-perfect credit and a lot of due diligence on the bank's part. The unfortunate reality is that many people do not have good credit and cannot qualify.
Most areas throughout the U.S. have a residential real estate inventory of 6 to 9 months. This means the seller typically has to wait this long before his or her home sells. The reason for this 6 to 9 month wait has nothing to do with a lack of interested buyers - there are many of them. It has to do with a lack of buyers that can qualify for a bank loan. Bank loans are no longer given to people with a credit score of under 640 or to people who need to state their income. This makes it impossible for many Americans to qualify for a home.
How many Americans can't qualify for a loan? According to FICO, about 60 Million can't qualify because they have a credit score below 640. The U.S. Census reports at least 20 Million sole proprietorships in America - all of these people need a stated income loan... but, of course, stated income loans are dead. In other words, over 80 Million Americans cannot qualify for a traditional mortgage. Now add in all of the Millions of foreclosures coming on to the market every month. It creates a situation where there are many eager buyers, but they have no ability to buy because they cannot qualify with the bank. The handful of homes that are sold go to the handful of buyers who can qualify. Those who can qualify are nowhere near the number of homes on the market - so, homes sit on the market for months and months. This is why owner financing is being used more and more - because homeowners are desperate to sell and unqualified buyers are eager to buy.
Owner financing enables the buyer to contract directly with the seller to acquire their home. There are multiple methods to make this happen. The top five are: lease purchase, lease option, owner carry, mortgage assumption, and mortgage payment assignment. If you are considering owner financing as an option, be sure to do your research and seek legal advice. These structures have to be set up correctly - otherwise, you could end up with some bad consequences.
Owner financing is an excellent option in this stagnant market. If you are looking to sell your home, it could be a way to move it much faster - and it is often the only option (other than foreclosure) if you are underwater on the mortgage. If you are looking to acquire a home and have less-than-perfect credit or can't qualify for a mortgage, it is a way to get into a home quickly with very favorable terms.
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1 comment:
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