Buyers and Sellers: Go on the Offense Against Poor Credit Issues: Consider Owner Financing
by Donny Mak
on Monday, October 3rd, 2011 at 1:00am.
By: Alan Aptheker
It’s time for buyers with poor credit to rethink about shrinking from their credit issues. Buyers slink slowly away from the home buying process, without asking the most basic question of the seller, or approaching the listing realtor with the proposition, “would the seller consider owner financing?” Here’s the ironic part – many potential homebuyers can afford to pay for a home, but their credit score is the high barrier to realizing their goal. More after the break...
I know a guy who did a short sale back in 2007 when he lost his $120,000-a-year position with a major bank. He did a lot of freelance writing, got his real estate license, and make it through the following 18 month subsisting pretty well as he doggedly pursued another full time permanent position. He got an attractive offer in late 2008, close to what he was making in his previous job, Knowing the short sale was a credit ding he could not overcome for a couple of years at least, he rented a townhome, and made a $1150 a month payment with ease.
The end of 2009, he approached his local bank with a 12 month net income track record just shy of $5K a month. It was a non-starter. As far as his bank was concerned, he was still unloanable, even though he’d received a $4K Holiday bonus just weeks before, and was planning on using this as part of a 20 percent (!) down payment. He considered continuing his rental, but instead, he took an offensive posture. He asked about owner financing.
Banks hate the word “creative,” and there are not enough realtors who have the tools and resources to do this, (a.k.a. seller financing), wherein the current owner of the home offers to loan, or “assigns” their mortgage to the new buyer. If you’re asking the obvious question, the answer is yes, banks will do this.
But, if a motivated seller is having trouble paying his mortgage, maybe facing foreclosure or short sale and needs to sell quickly, they’re typically willing to do this instead of having their credit dinged by short sale, or killed by foreclosure. The buyer signs a contract, make regular payments and pays interest, but instead of paying a bank, they pay the seller. The bank gets their monthly payment in full, and on time. Granted, there may be less wiggle room on the price.
The buyer should have an attorney look over the contract. There is a special contract used in this type of transaction that is approved by attorneys and acceptable by banks.
If you think owner financing is an option for you, contact us and we would be more than happy to talk to you about all your options.