Trying to obtain a mortgage for buying a home today can be incredibly challenging even for those with good credit and it could become even more difficult before it gets easier. This has many home buyers turning to seller financing which can bring many benefits but also comes with its fair share of dangers too. What do you need to know?
The Advantages of Seller Financing for Buying a Home
Besides being the only option for many, there are many benefits of buying a home with seller financing now, rather than waiting.
Homeownership comes with many intrinsic benefits that are often overlooked ranging from kids performing better at school to eliminating further moving costs. However, some of the most powerful advantage of owner financing whether seller held mortgages, rent-to-own or lease options are being able to lock in a great price on the home you want today and attractive rates. Plus, of course being able to start building equity right away rather than paying far more for the same home later.
Unfortunately, many buyers, especially first time home buyers are not aware of the risks.
The Dangers of Buying a Home with Owner Financing
Insurance can be a tricky issue until you actually own the property, so make sure the property and your belonging is covered.
The biggest risk for those buying a home in this manner is the financial situation of the current owner. If they owe more on the home than it is worth, they can’t really enter into a contract with you for less. You’ll also want to make sure that any current mortgages on the property get paid off or are at least up to date or you could lose your money and roof if it is foreclosed on. You need to check for other liens on the property and should make sure any appropriate documents are recorded in local public records to protect you.
Finally, those entering into rent-to-own agreements or lease options need to make sure their credit is on track to be able to qualify for a conventional loan when time runs out. You can’t just sit back and hope it gets better, it requires a proactive approach. You’ll also need to know what other special lender requirements there are for obtaining a loan in a situation like this, for example being able to provide a solid paper trail for all payments and showing they were made on time.