I have been receiving a lot of inquiries lately from people who want to purchase their next home using what's called Owner Financing. Owner financing can be an option for a buyer who needs to purchase a home now but for some reason or another can't get financed or chooses not to use bank money.
Other terms for Owner financing are:
- "Buying on a REC, or
- "Buying on a "Real Estate Contract,"
- "Buying on a land Contract"
- The owner will "Carry the note"
Here are some very important points you need to know about owner financing:
- You'll need to have 10% in cash to close a real estate contract. Frequently agents say 10% down, but it's not really a downpayment, it's 10% for closing costs. This is because on a regular purchase the seller will pay the commission out of their profit from selling the house. There is no big payoff with seller financing, so the buyer usually has to be the commissions.
- Some sellers hold out for 20% down. They want you to have a real stake in making your payments and keeping the house in good condition.
- You'll need to be working toward getting your own loan. Usually the owner only gives you limited time to get your own loan in place. Usually the REC (Real estate contract) will require a balloon payment (payment in full when you can get your own loan) in two or three years.
- If you're late on payments you'll get a $125 letter from the lawyer at the escrow company. I'm talking if you're 5 days late!
- There is no long foreclosure process. If you miss a payment you'll be thrown out of the house quickly.
Buying using Owner Financing is definitely not right for everyone, but if you need to buy on a REC I will help you do so. I have experience doing it.
Edit: In some cases the REC may very well be what's call a "wrap" of the sellers mortgage. There is a due on sale clause in every mortgage I've ever seen which means the balance of the mortgage is due on sale. In my experience lenders have not invoked this clause and required anyone to come up with the balance of the mortgage in cash, but buyers and sellers alike need to understand the clause is there.
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Albuquerque Realtor Rich Cederberg works for RE/MAX Finest in Albuquerque New Mexico. Previously Rich worked for RE/MAX Elite and the Vaughn Company Realtors for 5 years. He specializes in Albuquerque Real Estate, Northwest Albuquerque Real Estate, Rio Rancho Real Estate and Los Lunas Real Estate. He especially enjoys working with First Time Home Buyers. Call 505.803.5012 or email Rich Cederberg if you need a Albuquerque REMAX agent.
