What Is Owner Financing?


Quick Answer

Owner financing is when the seller of a home acts as the bank when selling. Instead of using the mortgage company, the two parties involved make an agreement on how the house is paid for.

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Full Answer

Some buyers cannot qualify for a loan from a bank. Owner financing does away with this problem. The buyer and seller can make an agreement that allows the buyer to make payments directly to the owner.

With owner financing, the seller will not receive a lump sum of money; instead, the buyer makes monthly payments. After a period of time, the buyer can refinance and go through a bank to finish paying for the house. The seller does not have to report to any credit agencies, so payments do not necessarily help the buyer's credit.

Owner financing has advantages and disadvantages. Aside from not getting all the money upfront, the owner runs a risk of not getting paid. However, it is easier to find a buyer if they do not have to be approved for a loan or have a large down payment ready. Owners may also be able to get a larger amount of money if the buyer does not have to worry about interest rates and approvals.

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