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10 Tips for Owner Financed Home Loans

Today it is possible to get an owner finance home loan with quite poor credit. With FHA for example, you can get a loan with a credit score in the low 600s.

Still, there are some Americans whose credit is too poor, or their documented income is too low to qualify for financing. Are you out of luck then?

Not necessarily. Another option is to ask the property owner to finance it for you. This is referred to as owner home financing or seller financing. This is a way to buy a home that is becoming more common after the mortgage meltdown of 2009, after millions of people lost their homes and ruined their credit.

If you ask the seller if they will finance the home to you, it is unlikely they will say yes. Very few homeowners understand what owner financing is. You may need to explain what owner financing is to them and your proposed terms.

But some home owners may be open to owner financing home loans because they cannot get their home sold at the price they want or need.

owner home financing

If you are interested in buying a home with owner financing, below is more information.


Owner financing is very similar to a traditional bank mortgage. The only difference is 'the bank' in this case is the homeowner. They allow you to buy the home from them on terms, and it could be very similar to a traditional mortgage.

Normally, you would need to put down at least 10% to finance the home from the owner. You might set up the loan for 20 or 30 years at a fixed rate of interest.

You will usually need to pay a higher interest rate than a bank mortgage because this is a higher risk for the homeowner. But an owner finance deal can still be a good way to get into a home if you cannot get a regular mortgage at the moment. Of course, home loans for bad credit and no money-down are not always enticing for sellers, but it never hurts to ask.

If you are seriously considering owner financing a property, you should keep these tips and guidelines in mind:

  • It is easier to qualify for an owner financed deal than a regular mortgage; qualifications will vary based upon the homeowner. It is likely however that the homeowner will pull your credit report. You should try to ensure that you do not have too many late payments in the last year on your credit report, so you can qualify.
  • The homeowner is not under as strict guidelines regarding making sure you can afford the payments on the home. However, it is to their benefit to do their due diligence and make sure that you can make the payments; foreclosure is a hassle and they are out several months of potential income. So, be prepared to show your pay stubs and tax returns to prove that you can afford the mortgage.
  • The down payment is flexible. The homeowner will want you to make a decent down payment to minimize the chance that you will default on the mortgage. But if the homeowner really needs to get income on the property, you could possibly put down less than 10%.
  • Closing costs are lower. You are not using a bank, so you do not have to worry about many of the closing costs of a traditional loan. You will be able to forgo discount points, processing and administrative fees and more. You also will not need to worry about an appraisal unless you want one for your own peace of mind.
  • Quicker Funding. Bank loans can take 60 to 120 days to close. A seller financed deal can close in 30 days or less, if you have all of the paperwork you need. Speaking of paperwork, you should have three months of bank statements, two years of tax returns, and a month of paystubs. The homeowner will want to see proof that you can make the payments and that you have the down payment.
  • Because you are a higher risk buyer, you should expect to pay full price on the home or even higher.
  • The owner financed loan must be fully amortizing. This means that when you make your payments each month, you must be paying down principal. The days of interest only mortgage are pretty much gone. When you are reviewing the proposed terms on the loan, make sure that the loan is fully amortizing.
  • If you do not make the payments, you can be foreclosed upon. Although the bank in this case is the homeowner, the foreclosure process really works the same. Foreclosure rules vary by state, but the rules will be the same in your state whether the bank or a homeowner holds the mortgage note.
  • Make sure there is no prepayment penalty on the owner financed loan. You will want to refinance the loan as soon as you can and your credit is in order.
  • Owner-Financed Loans are very popular for consumers looking for a home loan after a bankruptcy.
  • A homeowner is not going to be able to report your timely payments to the credit bureaus in most cases. So, you do want to get into a regular mortgage loan as soon as you can.

The Bottom Line on Loans for Owner-Financed Homes

Buying a home with owner financing is an acceptable way to get into a home if you are paying a fair interest rate and are paying roughly market value for the home. Seller financed mortgages and alternative purchase-money loans may have higher interest rates, so verify the affordability before making a commitment.

The most important thing to remember is that you are paying a higher interest rate on the mortgage. You will want to refinance the loan as soon as you can, so you can pay a regular interest rate. So, get your credit in order within a year or two and refinance.

If you follow the tips and guidelines above to owner finance a property, you should be able to work out a fair deal that works well for both sides. provides a news and information service by offering editorial content related to the housing and mortgage industry.
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