I have been self employed since I was 14 years old and I thought it was the coolest thing ever, until I turned 18 and tried to obtain a lease. I might as well have been unemployed when it came to filling out any type of application. Later in life, I would find that the same was true as a self employed borrower attempting to get a loan for a home. Banks just do not understand self employed borrowers, period.
My name is Alexander DiSaggio and I am the perfect candidate for an owner financed home. I am not only a real estate broker for a firm who specializes in owner financing, I am also an owner finance client. That is the reason why I am so passionate about helping out my fellow self employed brothers and sisters. As the broker of City Group Properties, we have focused on helping self employed borrowers obtain owner financing for over a decade, and we love it!
So the first question is, why owner financing?
The simple answer is: so you don't have to deal with the banks! Even if you are the perfect borrower, getting a loan through a bank is extremely time consuming and stressful. If you are self employed or have any credit issues, it is that much worse.
Owner financing can be relatively stress free, "if" you know what you are doing. Plus, these transactions can close in as little as 2 weeks.
BE CAREFUL: I found out early on that there are some very compromising characters in the owner finance world that have no problem putting themselves and buyers at risk when conducting these transactions. I do not believe in compromise, you either do something right or don't do it at all.
So what do you need to look out for?
First, you want to make sure you have a real estate agent that understands owner financing and does these type of transaction often.
Owner financing is NOT taught in real estate schools and there are a lot of real estate agents working on these type of transactions that really don't understand much about the deal. That is not good. You need a knowledgeable agent to represent your interests on these transactions. You also want to make sure you have a real estate agent who cares more about you than about their commission. They have to be willing to say "NO" to a deal if the seller is not doing it right. In my experience, 7 out of 10 owner finance homes that I find on the market are not being structured in a way that we would allow our clients to move forward in the transaction. In our opinion, there are a lot of sellers and agents that are simply putting themselves and buyers at risk by not conducting these transactions correctly.
Second, never "trust" the seller, or anyone in real estate, for that matter. Real estate should never be about "trust", it should always be about contracts, everything should be in black and white, and above all, everything should always make sense. If it doesn't make sense, run. When you add trust in to real estate, you are setting yourself up for disappointment.
Third, watch out for "wrap" transactions. This is a hotly debated topic that I go head to head with a lot of agents and sellers on. Again, it boils down to "risk" and "compromise". A wrap transaction means that the owner of the home will still have a mortgage on the property when they owner finance the home to you, and therefore your owner financed loan will "wrap" around their existing mortgage. The issue is that their existing mortgage has a "due on sale" clause, which means when they sell the property, their mortgage is due and payable at that time per their loan. Many agents and sellers will still conduct these transactions and argue that the bank will not call the note due. They will state that they have done dozens of these deals and that the bank has never called the note due. Regardless of whether their statements are true or not, the simple fact is that the clause is still in the seller's mortgage and they could call the note due after the owner sells you the property. If the owner does not have the money to pay the remaining balance, the bank could foreclose on the home. Whether there is a 1% risk or a 100% risk, it is not a risk I am willing to take personally, or with my clients.
Fourth, the typical terms of an owner finance transaction will include much higher down payments and higher interest rates than a typical bank mortgage. However, if you have a good real estate agent and a good lender, you should be given a strategy to prepare for refinancing in to a lower interest rate as soon as possible.
Bottom line: Owner Financing is great option for buyers who don't want the stress of dealing with banks and are ready to move in to a home quickly, however, you have to make sure you are working with a real estate agent who truly understands owner financing transactions and can mitigate the risks of dealing with sellers that do not want to structure the deal correctly. Sellers are usually offering owner financing because they want to sell their home quick and make money from the interest, but there are sellers that are offering owner financing for other reasons that you need to be aware of.
I love owner financing and our clients love owner financing, but that is because we refuse to compromise and always make sure the deal is done right. I hope this helps someone make a wise decision when purchasing their next home.