Buying Homes Owner Financed, or Seller Financed is not new, however 99% of the population has no ideas the millions of way an owner financed deal can be structured. More importantly, owner financed homes do not normally require application fees, application fees, mortgage insurance protections, or qualification using debt to income ratios.
This blog post is going to explore these various cost savings of an owner financed home versus traditional bank financing.
The first fee you can save is an application fee. Application fees vary greatly with many different lenders, and can oftentimes be hidden via other terms. This is typically a fee that is nonrefundable that is charged to the borrower for the processing of their application. These fees can range from $50 to $500.
The second fee you can save by purchasing a home seller financed is in the form of points. Points are typically 1% of the loan amount, and the more points you pay, the lower your interest rate should be. Conversely, the lower points you pay, the higher your interest rate. The majority of owner financed loans are 0 points.
The third fee that is usually not present during a seller financed is a Home Appraisal. Appraisal fees can range from a low of about $200 to a high of $400, or higher if the property is commercial, multi-unit, or industrial in nature. The only reason you need to pay this fee in a Full Owner Financed transaction is if you want one for the peace of mind. Note that oftentimes, sellers are able to get a higher sales price for the convenience of "being your bank". Thus, the appraisal, which is based on a "cash type" transaction may be a little lower than your agreed upon sales price. However, nothing is ever set in stone and an appraisal is simply one person's opinion on the value of a property.
The final cost savings can come in the form of PMI. This is a mortgage insurance payment that the borrower pays on "low down payment" loans. As the housing crisis progresses, these costs seem to be getting quite high for many borrowers, and definitely should be a consideration when evaluating a monthly payment you can afford.
In summary, owner financing is a great way to not only have a lower than normal housing payment, it can also substantially reduce the amount of money you need up-front to purchase the home.
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