The basics of financing by owner homes

by Debbie Goldberg 03/19/2023

Among the many options for home financing available to buyers, financing by owner homes often offer the most flexibility. By working with an individual seller rather than a mortgage lending institution, you have the opportunity to skip considerable amounts of red tape and extra fees.

But what exactly is owner financing? Here are some of the basics buyers should know:

What is owner financing?

Owner financing, also called seller financing, is when the owner of a property for sale provides partial or complete financing to the buyer directly. The agreement is similar in concept to a mortgage loan, only that the property owner owns the debts. Owner loans typically do not appear on buyers' credit reports for a particular transaction.

How owner financing works

Owner financing agreements work similarly to conventional mortgage loans. However, the seller provides credit to the buyer to cover the purchase. The buyer pays the owner back directly rather than a third-party lender. In most cases, the owner holds on to the title until the home has been completely paid off.

Typical owner financing conditions

As with all real property contracts, owners' financing arrangements need to be detailed in writing so both the buyer and the seller know the responsibilities of the contracts. Owner financing agreements require signing a promissory note including details on the interest rate, repayment schedule and the consequences of default.

Pros & cons of owner financing

For buyers, there are multiple advantages to an owner financing agreement. This type of financing is much quicker than working with a mortgage lender, and doesn't come with any bank fees or appraisal costs. It can be a great option for buyers who have trouble getting financing for other reasons like bad credit.

However, one major disadvantage of this type of agreement is a higher interest rate. Also, some agreements require a large balloon payment due after a certain number of years.

Is owner financing the right way for you to buy a home? Keep these key facts in mind when weighing your options for financing your dream home.

About the Author

Debbie Goldberg

I'm a full time Realtor with over 30 years of experience yet young enough to embrace today's ever-changing scope of marketing and technology. Having grown up in Connecticut and moved many times (too many to count!) I can empathize with today's buyers and sellers. Strictly maintaining ethical standards and being a fierce advocate on behalf of my clients are things I take very seriously. As a buyer, you can expect me to listen to and evaluate your real estate wants and needs. I can assist in explaining relevant forms, agreements, and closing procedures. I will guide you through the process of finding the right home, negotiating your offer, adhering to all contract dates and terms as well as final walk through and closing procedures. As a seller, I will listen to and evaluate your goals, needs, and timing in order to properly price your home to get the maximum exposure needed to attract the right buyers. In addition to negotiating on your behalf, I will make sure we communicate throughout the entire process as we navigate the contract terms, finance and inspection contingencies, as well as all closing procedures. I was born in Japan, grew up in Hamden and lived in New York, Ohio and Southern California before settling down in New Haven county to raise two kids, two dogs and a cat. I'm passionate about good food and love to bake. Some of my free time has been spent volunteering at Temple Beth Sholom, a synagogue where my family has been members for over 40 years. I also spend time at Tower One/Tower East, an assisted living center in New Haven where my mother-in-law now resides. 30 years of helping buyers and sellers achieve their goals has given me the peace of mind to know that what I do everyday matters. If you are thinking of buying or selling please keep me in mind.