Owner Financing Mortgage Notes

What Does Owner Financing Mean? 

Owner financing (sometimes also known as seller financing) in the real estate world is a type of financing than can be offered to potential real estate property buyers who might not otherwise be able to obtain a regular loan. 

The result of a owner financing real estate transaction is the creation of an owner financed mortgage note.

How Does Owner Financing Work?

When a property is being sold and owner financing is being offered as part of the sale of the property, the property seller is basically taking on the role of a bank. 

As as example, consider a home that being sold for $300,000 with a cash down payment of $50,000.  If the the buyer's financial credentials look good enough but the buyer is to qualify for a regular bank loan for the remaining $250,000, the seller might offer the buyer the option of owner financing. 

That means that instead of owing a bank the principal amount of $250,00 over time with interest, the buyer would now owe the seller the principal amount of $250,000 over time with interest.

Instead of the bank creating a bank promissory note that the property buyer pays back over time, the property seller creates a personal promissory note that the buyer pays back over time.

The Advantages Of Owner Financing

1)  Increase the marketability of the property for sale.  The property could attract more potential buyers who already know that it could be difficult for them to obtain traditional bank financing.

2)  The creation of an owner financed note could create a desirable new income stream for the property seller since the seller would be collecting on a debt with interest.


 

 


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What Does Owner Financing Mean