One of the nice things about owner financing is the flexibility of the terms. Oftentimes people who buy with owner financing have a lot of questions about things like down payments and monthly payments. In this free guide, we will try to simplify this in an easy to understand way using an example. A recent study showed that the average down payment on a property in 2018 was 19%. A good rule of thumb is generally a seller will want anywhere between 10% to 20% of the total costs down if they owner finance. Oftentimes doing a lease option as the owner financing method can get the buyer’s down payment down to a lower end of that percentage range since the term of this is typically much shorter than that of a traditional wraparound mortgage owner financing strategy.
Let’s take a look at a potential example. Sarah is self employed and has trouble qualifying for traditional financing through the bank. She makes a full price offer and requests owner financing with 15% down. The seller, Bob, lists the property for sale at $200,000. This means Sarah’s down payment being 15% down would be $30,000. Sarah and Bob agree on a 10 year term and an 8% interest rate that has a balloon payment due at the end. In this example, Sarah’s monthly payment is $1247.40. If she pays that for the course of 10 years, at the end of the 10 years, she would owe Bob $130,528.65. Sarah’s plan is to put money back over the course of the next five years so that she can go and obtain traditional financing through the bank. By doing this, Sarah cuts her interest rate in half, pays Bob off for the property and has a much lower monthly payment now because of the lower interest rate and because the loan amount is lower now since it has been paid down over the last five years.
If you would like to buy your dream home and are seeking a property that would be owner financed, we can help. While some services sell data to people that shows them available owner financing properties, we provide property list at no cost. To access these properties, join our buyer list. Not only will you get access to our available properties, but we will also try and find properties that match your criteria, helping you get into your dream home faster.