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What problems arise from owner-financing?
An alternative form of financing much hyped during a languish seller’s market is owner financing or owner carryback. This means the owner participates in financing the buyer’s purchase of the property, either in whole or in part. There are several reasons an owner would "carry paper": (1) to assist buyers to purchase the home, particularly when economic times are spiraling down; (2) to collect the interest — rather than the customary commercial lenders being the beneficiary; (3) to bring the real estate up to "snuff", such as a fixer-upper. In the context of a buyer, an arrangement such as this could give you the home at a good market price, perhaps with little down, at a lower interest rate than with conventional financing. In the context of a seller, the seller sells the home at close to market and reaps an excellent return on his or her money.
Owner financing often involves balloon payments, since the monthly payments are frequently interest only. This means that the buyer must pay the balloon loan off in cash or refinance the loan at current market rates. |
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