What is Owner Held Financing?

Owner financing occurs when the seller of a home finances all or a portion the sale of his or her own property. This is often referred to in real estate ads as “Owner Held Financing” or similar wording, meaning that the owner of the property will, in effect, act as a bank and loan the purchaser all or part of the money needed to purchase the owner’s property.

Unlike a traditional, institutionally-managed mortgage, an owner-held financing mortgage takes place between the lender (and seller) and borrower (new owner). The seller agrees to finance the sale of his own property by taking a down payment and the remaining payment in installments. These are often monthly payments like a traditional mortgage, but can include numerous other options to fit either the buyer or seller’s preferences.

Benefits for the buyer:

• You can purchase a property that you may not qualify for through a bank, even though from all indications you are financially able to handle the mortgage. A common reason the buyer may not qualify for a bank loan is a recent life change such as new to the area, a change of employment, divorce, starting a new business, etc. Banks don’t like to see changes and may deny the loan solely on that basis. Also, if you are currently paying on other real estate mortgages, or if you are not a U.S. citizen, you will likely have difficulty securing a bank loan. Lending institution policies may make it impossible for these and certain other people to obtain traditional financing.

• You can schedule a closing much earlier, in as little as two weeks, with owner-held financing.

• The overall closing costs can often be reduced.

• You can maintain greater privacy concerning your financial and personal history if you don’t use a traditional lending institution.