An alternative to getting a traditional loan is to look for properties that are offering seller/owner financing, which is exactly what it sounds like, a seller of a property offers to finance the purchase of that property for a buyer versus the buyer obtaining a loan from another source. This can open the door for some buyers who wouldn’t otherwise qualify for a loan, because in many cases owner financing offers an interest rate just below the going rate, and may offer less stringent loan approval guidelines.
When sellers act as a lender and provide the buyer with the financing for their home purchase, it’s a good practice to still qualify a buyer’s ability to repay, and stay consistent on the criteria you choose for qualifying. These could include credit checks, financial/tax document reviews and employment verification.
And, on the seller side, it’s important to note that owner financing is still subject to licensing and regulations that are important for real estate agents and owners to understand under the Dodd-Frank Wall Street Reform and Consumer Protection Act and provisions in section 129C of the Truth in Lending Act (TILA).
The National Association of REALTOR®’s Consumer Guide series summarized the most common seller financing options:
• Assumable mortgage: In this arrangement, buyers take over the seller's existing mortgage.
• Lease purchase: Also known as a rent-to-own agreement, this set up has buyers/renters pay sellers/landlords an option fee for the opportunity to purchase the property later on.
• Land contract: With land contracts, buyers make payments directly to the seller instead of banks or credit unions.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
