Andrew W. Conner, CMPS ®, CRMS ® 
  

Home Page Mortgage Market Update Ask Your Mortgage Professional Resources Contact Us

“Ask Your Mortgage Professional”                   

Owner Financing...Good Idea or Big Mistake?   

 

With many owners trying to sell their homes and fewer buyers being able to obtain conventional financing, some homeowners are opting to offer “Owner Financing”. Lease purchase is also a form of owner financing. While this may seem like the only option for some buyers, is it their only option and is it a good idea? Owner financing is a risk to both the sellers, and the buyers. Understanding these risks will help you decide whether this financing option will be right for you.  

 

As a buyer you need to know if the sellers have a current mortgage on the home. If you make your payments directly to the sellers will they continue to make their mortgage payments? This is a risk; do you really want to take it? Many lenders will not allow the option of a lease purchase to a third party and may call the note due if there is a current mortgage on the property. Most sellers do not want to hold a note/loan for 30 years. What are the terms of the owner financing or lease option? Do you have 2 or 3 years to obtain your own financing before you lose the opportunity to purchase the home? What about all the money you have already paid to the seller? Will you be able to get any of that back in the event you are not able to purchase the home at the end of the lease purchase agreement? If this be the case, have you really gained anything or should you have continued to rent and let the landlord make all the repairs instead of putting money into a home that you can no longer purchase? 

 

When opting to use owner financing or lease purchase options do not neglect to obtain an appraisal. No matter what type of financing you obtain you don’t want to overpay for the property. An appraiser will give you an accurate value for the type of property in today’s market. Buyers may decide not to get an appraisal in order to save the $300-$500, but in reality they could be grossly overpaying for the property. This will also play a major role in the future when you try to obtain conventional financing. If you have overpaid for the property you will have little or no chance to refinance because of lender loan to value guidelines. 

 

As a seller you need to make sure that the buyers are in a position to purchase the home on the terms and conditions set forth at the beginning of the arrangement. What is the reason that the buyers are not able to obtain financing now? What are they doing to make sure they will be able to obtain financing in the future? Are they working with a credit counselor? Are they working with a Licensed Mortgage Professional that will help them with a plan to obtain financing in the future? This needs to be looked at and addressed in the beginning of the lease purchase option. Depending on the buyers’ individual financial circumstances the lender should be able to project when the buyers should qualify, assuming they take the necessary steps to restructure or restore items in their personal financial situation as instructed.  

 

Whether you are the seller or the buyer you need to make sure to work with a Title or Escrow Agent that will ensure that all the proper documents are signed and recorded to reflect the ownership of the property and terms and conditions of the owner financing. 

 

Owner financing can be a great option for some, but for others it may be a long term rental agreement and you may never own the property. Make sure you know and understand the terms and conditions of the agreement. Take all the necessary steps to ensure that you can purchase the property in the future, if this is uncertain be cautious about entering into an owner financing option. 

 

If you have questions or comments please email them to [email protected]

Call Andrew today at 573-302-0600.  

Listen To “The Mortgage Market Update” Weekly Radio Show on KRMS 1150AM and 97.5 FM Every Friday Morning At 8:35am  

 

Andrew W. Conner NMLS # 245474

 

Copyright © 2008-2015 Financial Planning Tools & Services, LLC

Home Page
 What is the "Right" Mortgage Strategy?
 Making the "Right" Decisions
 Andrew W. Conner Profile
Mortgage Market Update
 The Biggest Misconception of 2011
 Property Taxes and Your Escrow Account a Consumer Tip
 Understanding Home Values In Your Market Place
 Avoid Foreclosure Consumer Help
 Foreclosure Help
 What Is Mortgage Strategy
 Should You Build Or Buy An Existing Home
 FHA 203K Loan Program
 Is Your Lender Ignoring Mortgage Strategy
 Lender’s Secrets On Advertised Interest Rates
 Missed Opportunities In The Housing Market Part 3 Home Prices
 Missed Opportunities In The Housing Market Part 2 Interest Rates
 Missed Opportunities In The Housing Market Part 1 Financing
 Are National Averages Really Your Local Housing Market Trends
 Consumers Beware This May Harm Your Credit Score
 Can You Really Improve Your Credit Score In 30 to 60 Days
 Your Credit Score-What You Need To Know
 Test Your Mortgage Knowledge
 Investment Property Opportunities
 Don't Fear The Housing Market, Why You Should Buy Now
 How To Interpret Today’s Economic News
 When Should You Lock In Your Rate
 How To Protect Yourself From Higher Rates In The Future
 Adjustable Rate Mortgages Understanding The Risks
 The Key To Getting The Lowest Interest Rate
 Mortgage Lending Does Not Have To Be A Challenge
 The Real Strategies Of A Reverse Mortgage
 The Truth About Reverse Mortgages
 Protect Yourself From Identity Theft
 Should You Invest In Gold or Real Estate
 Should You Pay Cash For Your Home
 How To Pay Off Collections To Qualify For A Mortgage
 Will You Have To Pay Off Collections To Qualify For A Mortgage
 Why Some Lenders Are Not Lending Money Part 2
 Why Some Lenders Are Not Lending Money Part 1
 Advantages and Risks of Auto Pay and Auto Debit
 The Benefits of Mortgage Insurance
 What Investment Strategies Do You Apply To Your Mortgage
 What Is Your Mortgage Strategy
 You Can Qualify For A Mortgage-Updated Lending Guidelines
 How Inflation Affects Your Mortgage
 Loan Officer Licensing Deadline
 Real Estate Is Still A Good Investment
 How Much Will That Low Introductory Rate Cost You
 Rates So Low Can You Believe All Advertisements
 Should You Pay Extra Principal On Your Mortgage
 Important Questions To Ask When Financing
 What Affects Your Interest Rate
Ask Your Mortgage Professional
 The Truth About Interest Rates
 What Every First Time Homebuyer Should Know and Expect When Buying a Home
 Financial Tips 2011
 Renting in Today's Housing Market, How To Protect Yourself
 The New Normal
 Strategic Defaults On The Rise
 Foreclosures, Short Sales, and Strategic Defaults
 Investing In Real Estate-Time Shares Are Not Real Estate
 Helpful Tips To All First Time Homebuyers
 Top 5 Questions To Ask When Getting A Mortgage
 Property Inspections Are They Really Necessary?
 Owner Financing...Good Idea or Big Mistake?
 Foreclosures...Good Deal or Bad Deal?
 Financial Tips 2010
 Lending and Your Credit Score
 Reverse Mortgages
Resources
 Website Links
Contact Us
 Privacy