Lots of folks today see home ownership as the land of milk and honey. Home ownership is great and important for families, communities, and on a larger scale for our economy. But owning a home is not the best thing for everyone right at this very moment.
I have done some research and published some blogs about purchasing owner financed homes in Lubbock. Therefore, I get a lot of referrals and phone calls from people who for one reason or another can't purchase a home with a traditional home mortgage. I truly want to help you people find a home to buy but the harsh reality is there just aren't many sellers willing to owner-finance their home.
Today in Lubbock's MLS, looking at Lubbock homes priced between 50 - 150K, there were 8 homes available for owner finance purchase.
The Not So Pretty Side of Owner Financed Home
20% down - Some are slightly less but it is typical for an owner who is taking the risk of financing the home themselves to want 20% down. If you buy a $100K home, you would pay the seller $20,000.00 at closing. If you don't have that much, then owner financed homes are probably not for you.
Firm pricing - Supply and demand allows these sellers to be pretty rigid about the price they are asking for a home. I have encountered sellers who were not willing to drop the price at all if they were to owner finance. And in one case, the seller actually wanted more than advertised if he were to owner finance. Don't pursue this avenue of home ownership if you want to 'make a deal'.
Higher Interest Rates - An individual who is financing their own home is not bound by rates set by the Feds. While buyers who use traditional financing are paying 3.8% interest or so, a buyer of an owner financed home is likely to pay around 7% - or higher.
Scarcity - The last bit is, as mentioned before, there just aren't many owners who will do this so your selection of houses is very minimal. Little to no choice in size, rooms, neighborhoods.
Suggestions for those wanting to buy Owner Financed Home
If you are hoping to buy an owner financed home, you still have to get your ducks in a row.
Save Money - start saving now and be prepared to set aside a good portion of your income. There is no need to call or try to buy an owner financed home if you have less than 15 - 20 percent saved up for a down payment.
Learn About Home Pricing - Even if you aren't ready to buy because of your credit or lack of down payment money, look online at homes for sale. Get familiar with typical prices for homes in different size ranges, neighborhoods, varying condition. That way you can be realistic in what you want versus what you can afford. Knowing home prices also gives you a goal for how much money to put back and save.
Work on your Credit - For some people it will actually take less time to bring their credit score up to an acceptable level than it would to save up a 20% down payment. If you don't know where to start, consider calling a local mortgage lender and asking for tips. If you are in Lubbock, call me and I can refer you to someone who can advise you.
Re-consider Leasing - Leasing a home is not a terrible thing and for some people and situations, leasing is the best thing & only thing to do. Consider leasing a home through a leasing company rather than an individual. Fell free to ask the home owner you are leasing from for references, You need to prove you are trustworthy and it is not unreasonable to want to know that your potential landlord is fair and honest.
This may not be the best news you have read but you now know the pitfalls of trying to buy an owner-financed home. Please do some research, weigh your options, and when you have your ducks in a row, THEN get in touch with me.
Have a great weekend all!
Mary Benton, REALTOR
Keller Williams Realty
Lubbock, TX
(806) 790-1026
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