By: Nate Gant, SVN Cornerstone Advisor
Owner financing is becoming an attractive option for both buyers and sellers in today’s lending environment. This financing method can make it possible for buyers to purchase a property without having to rely on a traditional bank loan, and it gives sellers greater control over the terms of the loan. With the right terms in place, both parties can benefit from owner financing.
What are Buyers Looking for in Owner Financing?
Buyers are looking for loan terms comparable to what banks were offering in early 2022. This means interest rates between 4 and 5% and down payments between 15 and 25%. It’s important to note that buyers are also looking for flexibility. The buyer will most likely want to be able to refinance the loan as soon as the market improves and they have access to more favorable terms. This means that the terms of the loan should be structured in a way that protects the seller. If the seller wishes to carry the note, so that it provides a monthly income through retirement, the terms should be adjusted to accomplish that goal.
Crafting Terms That Work for Everyone
When crafting loan terms, it’s important to think about what works best for both parties.
Interest rates
A higher interest rate may or may not be what’s best for you as a seller, and it may mean that a buyer is more likely to refinance the debt on the property more quickly. A lower interest rate and longer term allows the seller to achieve a higher purchase price by lowering the monthly payment.
Longer Loan Terms
A longer term gives buyers more time to pay off the debt, which can be beneficial to both parties.
Purchase price
A higher purchase price protects the seller in the case of refinance.
Down payment
A higher down payment can also be beneficial to the seller, as it reduces their risk in the case of default or foreclosure. However, a higher down payment can also be a deterrent to buyers.
In Conclusion
Owner financing can be a great option for buyers and sellers alike. It can make it possible for buyers to purchase a property without having to rely on a traditional bank loan, and it gives sellers greater control over the terms of the loan. Ultimately, creating a scenario where the cash flow is similar to what the owner currently receives, while also giving the buyer the opportunity to invest in the property and reap the rewards, is an arrangement both parties can benefit from.
Nate Gant is an Advisor with SVN Cornerstone. Nate has been an active member of the Eastern Washington real estate community since 2010. He has brokered more than $100 Million in real estate transactions, specializing in land development, REO and investment properties. To get in touch with Nate, email nate.gant@svn.com or call 509.993.4440.