Conventional lenders are turning down mortgage applications of an increasing number of home buyers due to tightening underwriting norms. For this reason, the concept of owner financing is getting popular among credit-challenged buyers. In an owner financing arrangement, the seller takes on the role of the lender and extends credit to the buyer instead of a bank.

If you are planning to buy a home with owner financing, here are a few important terms you should be familiar with:

Promissory notes

A promissory note is the most important document that the buyer needs to sign in an owner financing agreement. It basically contains all the terms and conditions of the agreement. It contains important details related to the property including its address.

• It specifies the amount of credit extended to the buyer by the seller.
• It specifies the interest rate and the amount of the monthly mortgage installment.
• A promissory note specifies the consequences of late payments. If you miss a monthly payment, you will need to pay late fee and other penalties.
• It also specifies the consequences of default. For example if you missed three or four mortgage payments, the seller can initiate the foreclosure process as per the agreement written into the promissory note.
• It also specifies the amortization period. It is the number of years by which you need to pay off the debt.

Many people confuse a promissory note with a deed of trust. Both are different things. A promissory note is held by the seller. It is returned to you once you pay off the debt.

Deed of trust

A deed of trust – filed with the public records office after the deal is closed – is a set of documents, stating that you pledged the property as collateral to secure owner financing from the seller. The third party trustee who holds the deed of trust can sell the property at public auction if you fail to keep up with your payments and become delinquent on your mortgage payments.

Balloon payment

Most owner financing arrangements require borrowers to make a balloon payment, typically within five years. A balloon payment is a large payment due at the end of this specified period. The amount of balloon payment will be specified in the promissory note. Let’s say for example the seller extended a credit of $100,000 in an owner financing arrangement. You may be required to make a balloon payment of $30,000 after five years.

Our Buyer Investor Match program, however, doesn’t require home buyers to make any balloon payment.

Loan servicer or note servicing company

A loan/note servicer is a third-party agency that can be appointed to collect monthly mortgage payments from the borrower. It ensures that the buyer complies with all the terms and conditions related to the repayment plan. The note servicer will hold the escrow and make insurance payments on time.

Under our Buyer Investor Match program, a note servicer is appointed so that the investor who is owner financing a home to a credit-challenged buyer receives the monthly payments at a fixed date every month.

Refinance

You are buying a home with owner financing because you are facing credit challenges or in other words, can’t qualify for a mortgage from a conventional lender, right? With owner financing, you will start building your credit score if you keep up with your payments.

Under our program, you can immediately refinance with a conventional lender once your credit score reaches a point where you can qualify for a mortgage. You can pay off your owner financing debt and get a mortgage at a lower interest rate.

In conclusion

An owner financing arrangement offers so many advantages to home buyers that the trend is really catching up in the U.S. housing markets. We specialize in this area and work with only credit-challenged buyers. You can get a loan for any home of your choice with no credit check or income verification. You don’t have to make any balloon payments or pay pre-payment penalties. And, you can refinance any time you want to. Sounds great, right? Just fill out the form below to set an appointment with us using our online scheduler…