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How does owner financing work?

We have been leasing a home for over a year, we put 10,000. down and are now going to use the owner finance option.

How does this work? The seller wrote up a contract through a "friend" with a title company but it seems to me the bank holding the mortgage should be involved. What do I need to do, or what should I be looking for? What are the usal steps?

lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

I would have your attorney take a look at it just to make sure the contract is not one sided. The title company will record the note and mortgage just like a mortgage company would. Instead of paying a mortgage company you are paying an individual.

Im not sure about a couple of the questions that you had about the bank being involved so please clarify a couple things. Is the owner financing just a portion of the financing? Is there a bank that will be holding a mortgage in addition to the owner financing? Please be more specific so that I can answer more clearly for you.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

by all means, get legal representation here.

i agree, lisa, that the reference to the bank is confusing. we need more information on that to make a reasoned suggestion.

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jheard's picture
jheard | Joined: December 12, 2007 08:20 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The seller will sell you the property by executing a Warranty Deed to you. The seller's mortgage will have to be paid off by the seller. You will give the seller a Promissory Note secured by a Deed of Trust (mortgage) on the property. Pay the title company to handle the details for you.

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi chaos,

Welcome to the forum.

Owner financing is when the owner finances his own property instead of the buyer and the buyer will pay a certain amount every month to the seller/owner.

As far as the contract is concerned I think you should check it by your attorney so that contract doesn't become one-sided.

Feel free to ask if you have any further questions.

Best of luck,
Larry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

who will have to pay the INS/taxes

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello Tina.

The buyer will have to pay the Taxes and insurances in Owner financing/seller financing because after buying the house the buyer becomes the owner with the obligation to pay the previous owner.

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brian1's picture
brian1 | Joined: June 14, 2008 05:14 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Be careful
It is a common con for someone to sell owner financed when they have a mortgage on a property then stop making the payments and pocket your money. This leaves you sitting in a home when the sheriff comes knocking with no place to live and a timeline to move.

I just read this exact scenario on a different forum and the person was stuck in a really bad way.

Good Luck
Brian

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i own a home free and clear. I am willing to sell it with owner finacing, how much should they put down and what percent should I charge for intrest. I plan to have a title company draw it up. Would like any advise

Thanks Linda

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Linda!

Welcome to Forums!

Owner financing is a popular option these days. The down payment for the house will depend upon the cost of the house and how much you want them to pay. The interest percent is totally your discretion.

Yes, definitely take the help of a title company to draw up the plans for you.

Feel free to ask if you have further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can anyone who own a home finance it to an individual interested in buying that home.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What are the qualifications which a homeowner must have in order to finance his home?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Gloria Parker!

I haven't heard anything about qualification of a home owner in case of owner financing. But there are certain things which both the owner and buyer should remember while owner financing. You will have to maintain the legal docs so that neither the owner nor the buyer faces any problem in future.

Thanks.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

there are agencies who specialize in assisting property sellers in arranging owner-financing...perhaps they assist buyers with questions, as well.

the best overall bet for anyone contemplating such a thing - whether buyer or seller - is to engage legal counsel. neither side would want title issues to encroach upon the deal. my basic suggestion, seek out a lawyer who would, we hope, be familiar with owner financing so as to be fully protected.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my boss has offered to sell me the business i have worked at for 3 years and adore with owner financing.

if i would be responsible for the rent, utilities and the mortgage payment to him, where would my own personal rent, etc come in to play. or would it?

thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Once you and your boss signs a owner financing agreement, you will have to make the payments according to that agreement and yes, you will be responsible for the rent, utilities and the mortgage payment to him.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

not sure what you mean about your personal rent, wolves. can you elaborate?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am currently owner financing my home as we speak. We drew up a contract in Word and it states how much they put down, how much they pay a month and after a year they can take the amount they paid that year off the price of the home and either borrow that amount and pay off the mortgage that I have on it OR they can continue to keep paying my mortgage til they can get better credit and afford their own loan to help their credit. They are friends of mine and I work with one of them so yes its scary and all but with the economy the way it is...I would rather make them happy and keep them in it then for them to find something else and I be stuck with it again. Its a beautiful BIG home but just not for me!!

Thanks and good luck everyone!!

-- snasteen

[size=9:33a3f23f85][color=Red:33a3f23f85][Email address deleted as per forum rules][/color:33a3f23f85][/size:33a3f23f85]

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i would love to know, snasteen, if you are responding to one of the other posts on here or it this is a wholly independent posting of your own. what you have to say doesn't seem to correlate with any of the other commentaries.

i have to say that what you've written about seems like a pretty good deal for the people buying your home are getting. one other thing you can do for them is to keep a record of how they are making payments so you can add to their credit reference pile, so to speak, when the time comes for them to go and get a mortgage.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Do you know what a typical down payment is on owner financing? 20, 30, 40, 50%?
Also, a typical loan term? 5, 10 15years??
Thank you!

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

loretta, since these loans are negotiated between an owner and a buyer, i don't believe you will find that there is a "typical" down payment or loan term. a lot depends on who the borrower is - in my mind, a sensible owner who contemplates financing a purchase for a buyer would require a credit report. that is clearly going to impact the negotiations.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I sell my house with an owner finance, and the new owners default on the note and , leave the house in degraded condition or in another scenario, the house is destroyed by fire or such, where do I stand with the morgage?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Our contract (drawn up by an attorney) states they have to pay the taxes by January 31st. If not paid after 10 days, we can (and did) assess a late fee. We notified buyers full balance of taxes (less than $250) must be paid by March 19th or we will take further action. Buyers are promising not to pay until at least March 31st.

Buyers are demanding we show them our mortgage statement on the property because it it their "right" to see it. We pay our bills and our payment history, although perfect, is none of their business.

Is there free legal assistance that we can refer the buyers to? I want them to understand we are not the boogie men and aren't asking to be paid in a timely manner to be 'mean' to them.

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mary,

Both you and the buyers are legally bound to follow the terms of the owner financing contract. If the contract clearly states that the buyers need to pay taxes by January 31st, they will have to pay it within the specific date. You can take action against them if they violate the terms of the contract. If required, talk to the attorney who prepared the contract.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Sorry to hijack, but if you did owner financing as a seller with the proper contract and agreements, would that home still be included in your debt to income if your trying to buy a new house? Will there be a timeline needed for the seller to show that payments are being made from the new buyers?

Reason I am asking is I am trying to sell my home currently and am wanting to buy a new one as well. I know I will run into problems with debt ratio for two mortgages. Thanks

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Marvin,

You will be able to go for a seller financing if your property is free and clear of any mortgage. So if your property is free and clear and if you did a seller financing, then the property will not be included while calculating your debt to income ratio.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If owner finances do they usually do it for the entire time OR do they typically do it for a 2-3 year period with a clause that the buyer will then have to get a traditional mortgage, etc.?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Mitzi,

Owner financing is normally done for 3-5 years and then the buyer will have to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] the loan and pay off the seller.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What if the seller is at fault? I have made all of my payments on time, paid the current and past due taxes, filed and paid for the contract of deed, paid to have the utility lein taken off and he is still refusing to obey the contract? Is there something that I can do? I was told the 10% was high for an interest rate. I was told that the house appraised at $40,000, he sold it to me at $100,000 and I have to pay $2500.00 every tax time (not principal) plus a $5000 down payment. In 8 months I have spent close to $20,000. Does anyone know about unsophistic investor.... I feel like I am one. The sqft land is 0.28 acre the home is 1162 sqft

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

is owner financing and rent to own on the same order

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome yvonne,

Owner financing and rent to own are not the same. To know about owner financing, check out the given page:
http://www.mortgagefit.com/owner-financing.html

In case of the rent to own option, the owner rents the home with the condition that the property will be owned by the renter if the term of rent is finished, or if the lease can be converted to a sale.

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