What does owner finance mean when buying land?

People who are about to buy land tend to go for multiple financing options. Out of those financing options, owner finance holds a prominent place. If you are about to go for this option, you should have a clear understanding of what exactly it is. Then you can clearly confirm whether it is the right financing option available for you to consider.

What exactly is owner finance?

Owner finance is where the landowner will provide you a financing option to go ahead and purchase the property. If a bank is not interested in providing money to you with the purchase of property, you may think about taking a look at this option. Then you can learn how to get the most out of your investment.

You will need to negotiate the terms and conditions of the loan along with the property owner. Based on that, you can clearly define an outline and proceed with the purchase of the property. However, there are some important things that you will need to keep in mind before you go for owner finance. Keep on reading this article and we will help you to clarify all those doubts.

The property owner might do a credit check

Some people believe that they will be able to purchase a piece of land without going through a credit check with owner finance. This fact is not true at all with owner finance. That’s because the lender might sometimes decide to do a credit check before allowing the loan to you. While offering the financing solution to you, the lender will be taking a risk. Hence, lenders are looking forward to minimizing their risk as much as possible. This is where they will usually request you to provide a credit report. Along with the credit report, you will also need to provide important information related to references and employment history as well.

You can negotiate the down payment

You will have to go through some negotiations with the seller before you sign the owner finance contract. For example, you will need to negotiate the down payment. This can also be considered as one of the key benefits that you can experience by purchasing land with owner financing.

It is up to you to use your negotiation skills and secure the best possible deal. In some of the instances, the lenders will agree to provide a small down payment to you as well. However, the interest rate you have to pay will increase with such a low down payment. You will need to keep this fact in mind and try to negotiate the best possible deal.

Owner finance is never a long term solution

If you are about to purchase land with owner finance, you will need to understand that it is never a long term solution available for you to consider. In other words, you will not be able to get a repayment period of up to 30 years with owner financing. Therefore, you will need to make sure that you keep realistic expectations in mind as you go ahead with owner financing. Then it is possible for you to secure the best possible deal at the end of the day.

While making the decision to go ahead with owner financing, you will also need to keep in mind that there is a balloon payment that you have to make. It is important to double-check and confirm that you are in a position to make this balloon payment whenever you have to make it. Then you will be able to avoid the negative consequences that you will have to face by failing to make the balloon payment.

When should you go for owner finance?

There are numerous situations where you can make the decision to go ahead with owner finance. If you are not in a position to get a bank mortgage, you may take a look at this option. That’s because the terms and conditions associated with owner finance are not strict when compared to bank financing. You can consider this as a short term solution, which you can follow up until you make yourself eligible to receive a bank loan. Then you will be able to get the maximum returns offered out of owner financing.

Some of the people are in a hurry to purchase the property. If you don’t want to go through the lengthy bank process, you may think about going forward with owner finance. Then you will be able to get the land within the shortest possible period of time.

Before you go ahead with owner financing, you will need to understand that the piece of land you are about to purchase has a lower closing cost. There can be numerous costs and fees that you have to pay at the time of closing the deal. It is important to understand what those expenses are. Based on that, you will be able to decide whether it is a great option available to consider or not.

In the meantime, it is important to understand that partial financing is available for the land you purchase as owner financed land. In other words, you will be able to get a loan that is equivalent to the partial amount associated with the land. In such a situation, you will have to look for another financing option to cover up the difference. Or else, you will have to pay the remaining amount out of your savings.

Final words

Owner financing is a great financing option available to buy a piece of land. However, you need to make sure that you are taking a close look at all the pros and cons associated with it. Then you can decide whether owner financing is the best option available out there to consider or not. If you make the decision to proceed with owner financing, you can negotiate with the owner and determine the terms and conditions of your loan.