At the start of the 21st century, it was surprisingly easy to obtain a mortgage. House Buyers looking to get on the property ladder were often given considerable loans without providing much proof of their current financial status or income – but this all changed when the economy crashed.
Of course, the economic situation is now making a recovery, but it still remains hard to take out a traditional mortgage, which is why some people are turning to alternatives like ‘owner finance’ – but what does this entail? Let’s find out.
What Is Owner Finance?
Essentially, owner financing is a way for singletons, couples and families alike to purchase a home without a typical mortgage loan. While there are many different types of mortgage loans available, you might find it hard to borrow money particularly if you have a bad credit score (due to unpaid credit card bills and such like), are on a low income, only have a small deposit, or have lived in the UK for less than three years – all of which make owner finance an attractive option.
Owner financing might sound complicated, but all it means is that the person who sells the real estate agrees to take payment over time for the purchase price of the property. So, if you really like the look of a house but can’t secure a traditional mortgage loan, you might ask to pay £1,000 to the seller each month over a set number of years.
If all is agreed and payments are made correctly and promptly, this is a very efficient owner financing agreement, sometimes called seller financing. The rules of the agreement are usually made clear in a contract which is signed by all parties and typically includes a purchase price, an interest rate and a schedule of payments.
Benefits Of Owner Finance
It’s fair to say that some sellers prefer buyers who have secured a mortgage as it is fair evidence that the buyer has a sound financial history and is serious about their purchase. That said, owner finance is a great option for many property owners as they might be able to sell the property for a higher price (through regular instalments) than dropping the price to make a quick sale via the traditional mortgage purchase route.
What’s more, payments from a buyer increase the seller’s monthly cash flow, which, in a climate where cash is often king can prove invaluable. Finally, owner finance is a great solution for those struggling to sell their property as it attracts a different set of buyers.
The benefits for the buyer are also significant as they can make private negotiations with the seller without having to reveal their entire financial history to a mortgage lender, only to be turned down. Even if the seller demands a credit report on the buyer, the seller’s interpretation of buyer’s qualifications are often a lot more flexible than those of conventional mortgage providers. It’s also important to note that down payments are often negotiable giving buyers the ability to purchase a property without having to save a huge lump sum.
Disadvantages Of Owner Finance
Owner finance is undoubtedly a clever and innovative way for people to get on the property ladder, but before you agree to anything it’s important to read the small print and understand every clause of the contract. Sometimes, financing agreements have consequences if you make a late payment such as losing equity on the property, so make sure you know all the finer details.
Buying a house can be complicated, but with owner finance you can have a place of your own even if your credit rating isn’t perfect or you’re struggling to save for a deposit.