Buying Property with Owner Financing

Owner financing can be either a blessing or a curse. It all depends on the paperwork involved. We once bought an old home from the previous owner and learned some valuable lessons. I'll pass them along to you.

Owner Financing

Lesson One

Make sure the "owner" has the right to sell it. The place we bought (before we knew better) was under two different mortgages. He was a very old man and had bought the place as an investment, renting it out for forty years before selling it to us. The first mortgage was still in effect and half of our payment went to that. This was in the seventies, so our total payment weren't too steep, but nonetheless, we didn't own it until the entire debt was paid. The previous owner told us that the roof was good (and it looked like it, until it rained) but the bathroom leaked like a sieve. He also told us that the pump motor for the well was "new". It was over twenty years old, and at his age, that seemed new to him. We we're not only surprised, but had to cover the costs out of pocket.

Owner Financing

Lesson Two

Get everything in WRITING from the seller. Don't leave out a single detail! We bought an older home that needed a lot of work, just to make it livable. Most of the problems were with wiring and plumbing and he had assured us VERBALLY that both were in good shape. After six months, we had to hire a contractor to completely redo the wiring and plumbing both. The price was atrocious and the seller got away with it because we never thought to get every detail in writing before we bought the place.

Owner Financing

Suggestion Three

The original price may be a little easier to handle, but if there is any fixing-up to do, remember, you'll either have to come up with the cash out of pocket, or get a second loan. This can be hard to do, especially if the original seller has bad credit or a bad reputation. Don't forget, you're not only using your own credit history, renovations will also be affected by his.

Owner Financing

Suggestion Four

Be aware that the property isn't going through a realtor for a reason. Before you even consider signing anything, find out why. It could be as simple as the fact that the owner doesn't like realtors (or maybe one in particular) and wants to cut through the usual "red tape" that realtors require. Or maybe there's something else lurking in the background to keep him from using a real estate agent. Find out what the problem is and act accordingly.

Owner Financing

Suggestion Five

If the owner suggests that you can re-finance in five years and pay him off, you should wonder why he doesn't go through a bank. For example, we looked at a property where the owner told us just that. We wondered why it could be refinanced in five years but not right away. By asking a few of the neighbors, we discovered that the foundation looked fine but was crumbling and that the septic tank not only had to be replaced, but connected to the city sewer before the place was fit for habitation. Yeah, we could have bought it, fixed the foundation (for almost as much as the price of the property to start with) and paid out the wazoo for connecting to the city sewer.

Owner Financing

Suggestion Six

There's an old saying, "Let the buyer beware." It really applies to buying a piece of property from an owner directly. Be wary, be careful, be watchful or you could be STUCK.