Contigo Realty

Phoenix Owner Financing 101 For the Home Buyer

Owner financing or "owner carry" is a great option to consider when looking for a home in Phoenix or Scottsdale, but it's important to understand how this type of real estate transaction works before you jump in.The real estate collapse and the downturn in our economy left many homes in Phoenix in foreclosure and many displaced home owners in a huge bind. They want to buy another home, but they can't qualify for a loan with conventional lender financing.

Find a Home That the Seller Owns Outright
True owner financing means that the seller finances your purchase and acts as the bank. In general, owner financing works best when the seller owns the house outright. We can help you find the properties that are offering owner financing, and determine whether the current owner owns it free-and-clear.

Next, We'll Help You Negotiate
Once you’ve found a house or two that you love, some negotiating will be necessary. There are many advantages to owner financing and one is the ability to negotiate the terms of your contract. This includes purchase price, down payment, payment amount, amortization schedule, and interest rate.  As an example, perhaps you are unable to get a convention loan for 4 years since you've had a recent foreclosure (timelines vary, so contact us for details) and the seller doesn't want to extend a loan for 30 years.  You might want to negotiate a 5% loan with a balloon payment after 7 years, at which time you'll be ready with conventional financing.  That's a win-win situation for both parties - the seller gets interest payments on his investment (higher than a bond or most dividend stocks!)  for a few years and the buyer gets to have a home now with a reasonable loan.

But remember, owner financing acts as a real loan, with a lien against the property and the ability for the seller to foreclose if you don't pay!

While we’re here to assist you in negotiations, it’s important that you know as much about the process as possible. Only you can determine what your bottom line is and how much you can realistically afford to pay. Take a look at your budget before you enter negotiations.

Close Fast and Move into Your New Home
We highly recommend title insurance for our buyers. This protects you in case of unforeseen problems that arise from the title to the property, like unpaid real estate taxes or other liens against the property that didn’t initially show up during the title search.

While owner financing eliminates much of the paperwork generally associated with conventional lender financing, there are still important documents that must be drafted other than the standard Arizona Purchase Contract. Some of these documents include the  the promissory note, the deed of trust and paperwork for the lien for the loan amount.

Buyers may wish to consult an attorney to look over loan repayment language, though a title company often prepares standard documents and records them immediately afterwards. Another benefit of owner financing is that closing is much faster, which means you can get into your home that much sooner.

Account Servicing to Handle Your Payments
Though the seller is now your lender, it’s never a good idea to make your payments directly to the seller. A neutral third party, often known as an account servicing agent, accepts and disburses payments and maintains accounting records. Many title companies offer account servicing. They also retain documents, provide IRS reporting of interest paid, and many other useful services.

There is usually a one-time set up fee and small monthly payments. Most of the time the buyer pays for these services, but it can be negotiated where the fees are split between buyer and seller.

We actively look for homes for interested clients where the seller has indicated owner financing is available. Approximately three percent of homes listed by real estate agents in the Phoenix area offer owner financing, however, that number is likely to rise if bank financing remains restrictive.  If owner financing options seem like a good fit for you, contact us to help you get started.

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Though not guaranteed, information and statistics in this article have been acquired from sources believed to be reliable.

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The Fair Housing Act prohibits discrimination in housing based on color, race, religion, national origin, sex, familial status, or disability.

Information Deemed Reliable But Not Guaranteed. The information being provided is for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. This information, including square footage, while not guaranteed, has been acquired from sources believed to be reliable.

Last Updated: 2020-08-11 16:13:02