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Wednesday, April 4, 2007

What are Owner Financed Mortgages?

I mentioned Owner Financing in my last post and want to take time to explain further how this can truly benefit Home Owners.

Owner-Financed Mortgages, also are known as seller-carry back mortgages. They're created when a seller of a home decides to "carry" a mortgage note from the purchaser of his or her home.

This is usually done when the property is difficult to sell or when the buyer cannot obtain traditional financing from a bank. This might happen because the buyer has had bad credit or a blemish on his credit report, "too much debt" or maybe because the property is in a rural location with a lot of land (banks typically don't like to lend on these types of properties).

There are literally billions of dollars of owner-financed mortgages in circulation at any given time. Owner Financing has been in existence for decades and is becoming more and more common today because of the growing numbers of individuals who fail to qualify for a traditional loan from a bank or mortgage company. Banks are also becoming more conservative in their lending practices.

These factors prevent millions of families from being able to obtain home loans, reducing the number of potential home buyers. With this in mind, home sellers sometimes choose to offer owner financing in order to sell their homes faster. They request a down payment (generally 5% - 10%) and the interest rate is higher than market rates. Of course the agreement between the seller and buyer is negotiable in terms, so the buyer is able to purchase the home.

Why Should A Home Seller Offer Owner Financing?
It's challenging when a person decides to sell a house. Sellers frequently face a limited time period to make a sale. Jobs, transfers, debts, moves and changes in our lives create serious needs.

Sometimes market conditions are not good for getting what the seller wants. Of course, there are interested buyers. They may have the funds for a down payment, but the problem might be securing a traditional loan. Offering Owner Financing opens the doors for many buyers who get turned down by the banks.

Immediately after the home is sold with Owner Financing, the seller is satisfied because the property was sold quickly and receiving a good return on their investment.
As time passes though, the mortgage note holder might decide that having a lump sum of cash would be better than waiting years to collect the balance, usually one month at a time.

The seller would than contact a Contract Buyer, also known as a Note Purchaser, who would help them cash out their note.
TAKE NOTE: If the seller wishes not to carry the note at time of sale, a contract buyer can purchase the note at time of closing for cash, which is known as Simultaneous Closing (see previous post)
There are many good reasons for an individual wanting to cash in their note.
Some are:
A) Becoming debt free or Consolidating debt, including high interest credit cards
B) Paying for their children's college education
C) Taking an exotic vacation or purchasing other luxuries
D) Purchasing a new home or second home
E) Other investment opportunities
F) Medical care
G) Or simply, just storing away a lump sum of cash received

The benefits of offering Owner Financing can put you in a winning financial position.
The contract secured by your house, is worth thousands of dollars in a lump sum of cash. It doesn't' matter if it's a new contract or one that's had some payments made. Each one has it's own characteristics that gives it cash value. Based on your needs, a Contract Buyer can tailor unique purchase plans that you can benefit from.

Here's two examples on a house which sold for $100,000.00

Example one:
Selling price.......................$100,000
Down Payment .......................$ 21,000
Remaining balance amortized 2o yrs.............$79,000
Interest Rate .........................10%
Monthly Payment ........................$762.37
48 payments have been made totalling....$36,593.76
Current Balance on Principal Owed..............$72,890.71

The contract buyer offers $63,500 CASH

The Seller has received a total of $121,093.76 Not bad for a house selling for $100,000

Example Two: Selling Part of Your Contract:
Selling Price.......................................$100,000.00
Seller Received 48 Payments ........................$ 36,593.76
Contract Buyer Purchases the next 60 payments.......$ 34,500.00

Total Cash to Seller so far.........................$ 92,093.76

After 60 payments, the Contract is returned to the
Home Seller with a balance of ...................... 60,892.03

When you add the total cash to the seller, plus the remaining balance after 60 payments, it totals $152,985.79 AND, don't forget the interest they'll earn on the remaining balance. Remember, the house sold for $100,000.00

Selling part of a contract can be very profitable.

Offering Owner Financing can be a win-win situation for everyone involved. It can be financially beneficial and the possibilities are endless.

If you would like more information, please fell free to get in touch with me. I will teach you the options and guide you along the way. FOR SALE BY OWNER

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