Tom Hanna Business and Real Estate

Owner financing, is generally not a good way to get a home with little down but may be a good alternative for borrowers without sufficient credit to get a mortgage in the current market. Here’s why it won’t generally work for “no money down” — the owner needs enough of a down payment to cover his cost of selling — the brokerage fee and assorted closing costs. Expect to put 10% or more down, though exceptions do exist.

“For Sale By Owners” (”FSBOs”)may be an exception, with lower closing costs, but there are big risks in dealing with “FSBOs” and you need to be exceptionally careful. First, many “FSBOs” don’t understand or try to avoid consumer protection and fair housing laws; they may be selling themselves because they don’t want to disclose a property defect and they know that a real estate licensee must disclose it. Second, many FSBOs have their homes priced unrealistically high. If you are simply looking for your first home, the higher price and usually higher interest rate may be worth it to get your foot in the door, but for investors a 3% price difference coupled with 1-3% higher interest rates can make or break you. Finally, in the Joplin area there have been several cases the last few years of a seller advertising “bargain fixer uppers” on a rent to own basis, charging twice or more what they are worth, taking large (10%) down payments and then defaulting on the mortgage, leaving the buyer holding the bag.

Two exceptions to the general rule are for the owner to “carry a second” note and deed of trust (mortgage) for part of the downpayment (you get a first mortgage from another source) or to owner finance with a deferred downpayment (usually in the form of an addition to the monthly payment). An owner “carrying a second” may help you qualify for a “nonconforming” loan from a mortgage company. Ask your real estate agent about available properties where the owner is willing to carry a second. Deferred down payments usually require a deferred commission arrangement, so look for “owner-agent” properties.