Breaking Down Owner Financing: the Pros and Cons for Both San Diego Buyers and Sellers

San Diego buyers attempting to purchase a home may be stressed to find the right option for financing.  Paying out of pocket is common for investors and those that are looking to purchase their next home may use a mortgage.  However, there is another financing option that is not as commonly used. Owner financing – also known as “seller financing” – is a way for a home buyer to avoid using a bank and go straight through the San Diego home seller.

Choosing Owner Financing

As with anything, there are benefits and drawbacks for both sides when using owner financing.  However, there are a few instances where both parties may be drawn to this option.  

One common problem San Diego buyers have is an inability to get a mortgage through a lender.  The reality is that many factors go into qualifying for a mortgage. A bad credit score, no credit history, too much debt, or other red flags for a lender could lead to a buyer wanting to use owner financing.  Some lenders are extremely cautious with what homes they will provide a mortgage for. As a result, the San Diego home seller may be a better option if they would like to sell their house.

A homeowner who is unable to sell their house may begin to panic.  In a market where few San Diego buyers can get loans, using owner financing may entice new buyers to consider making an offer on the home.  Negotiations are often easier in these situations because there will no longer be a lender to think about.

Using Owner Financing

As the name describes, owner financing means the San Diego home seller provides financing to the home buyer to purchase the home.  To enter into an owner financing agreement both parties will review and agree to the terms set forth in a Real Estate Purchase Agreement.

The terms of the loan will be outlined in the Promissory Note.  This is the documents that will show what payments will need to be made and what the interest rate will be for the length of the loan.  This is also the document that shows the buyer’s intention to pay the loan within the allotted time.

San Diego Home Buyers

A San Diego buyer may be enticed by owner financing because they typically close much quicker than buying with a mortgage.  There are fewer steps to take without needing to go through the bank for financing. Additionally, closing costs can be lower because many of the third party agencies are cut out of the deal.  Overall, this can be a great strategy for a San Diego buyer who does not qualify for a mortgage to still make a purchase.

Keep in mind that the interest rate on an owner financed home is likely to be higher than what a bank would offer.  Even if the home seller is willing to consider owner financing the buyer still needs to convince them that they are not a risk.  

San Diego Sellers

San Diego sellers have the possibility to make more home with owner financing because they can charge a higher interest rate.  The home does not need to be sold in pristine condition and buyers may be willing to buy “as-is.” In most situations, owner financing deals tend to close faster as they are not held up by the buyer having to wait to be approved for financing.

In this situation, the San Diego home seller is still responsible for the payments that the buyer does not make.  If a buyer decides they no longer want to purchase the home after living in the home for a few months or even years, the homeowner is now left with any damages that have been incurred in that time.  

When used properly, owner financing can be a solid option.  Yes, there are risks for both parties involved. However, it can be an option that allows a San Diego home buyer to gain financial help without needing to use a lender.  Similarly for the sellers, if the home is not selling well to those buyers using a mortgage it can be easier to sell to a home buyer who is willing to use owner financing.