The Pros & Cons of Owner Financing

Real estate agents and Idaho home sellers need to consider a variety of marketing strategies when listing a property for sale, especially when the market shifts due to high-interest rates on home loans. This may mean being more flexible and creative with the offer terms. One option to consider while marketing the property is to promote and offer owner financing.

Pros for Buyers

A major benefit for buyers with owner financing is it gives them more financial freedom. Although a buyer may be very qualified, a traditional mortgage lender may not approve them because of its strict guidelines. A great example could be that a buyer has assets tied up in a business or another property and they just need a few months or years to liquidate those assets into cash. The buyer can also save thousands on loan fees.

Cons for Buyers

Many owner-financed loans have a much shorter term than a traditional mortgage. Instead of 20-year or 30-year loan periods, a seller may only agree to a 3-year or 5-year term and require a lump sum balloon payment at the end of the term. Owner-carried contracts can also have interest rates above the current market rates.

Pros for Sellers

If a seller owns their property free and clear, an owner contract has many benefits. The first benefit is it opens up your property to a larger pool of buyers which could mean fewer days on the market. If one does not need the cash, it also means more money in their pocket in the long term because they are collecting interest on top of the purchase price. If the buyer defaults, the seller still owns the property and gets to retain the down and principal payments already made on the property.

Cons for Sellers

The seller does not get the full proceeds from the sale right away. If the event the buyer defaults, the seller would have to foreclose on the buyer and this process can be tedious. The seller also has to start from scratch on listing the property for sale to attract new buyers.

Final Thoughts

There is no cookie-cutter way to structure an owner-financed loan. As long as both parties agree to the terms, there are many possibilities available. I would highly recommend both parties review the contract with their prospective attorneys, accountants, and insurance agents to ensure they are protected. Using a third-party long-term escrow company to manage the monthly payments and the escrow account is also very beneficial. When negotiated correctly, this scenario can be a win-win for all parties.