A home that is owner-financed means the seller agrees to take incremental payments over a specific period of time, such as $2,000 a month over 35 years, according to Phil M. Fowler for SFGate. Also called seller financing, owner financing became popular when the stock market crashed.Continue Reading
Owner financing can differ depending on the details of each transaction and the desires of the buyer and seller, notes Fowler. Owner financing agreements most often include an interest rate, a purchase price and a payment schedule. Owner financing is a viable option for borrowers who are unable to secure a standard home loan. In most cases, neither party is very apprehensive about entering into an owner financing agreement. Although the seller has to wait for payments, he can make money on the long-term mortgage loan by charging the buyer interest.
Two of the downsides of owner financing are a borrower may not be able to make online payments or receive monthly payment reminders the same as he might with a standard home loan, explains Fowler. An individual who enters into an owner financing agreement also may not realize he is supposed to send the IRS a Form 1099 to claim a paid mortgage interest tax deduction.Learn more about Financial Planning