Owner Financing

AAA

DEFINITION of 'Owner Financing'

When a property buyer finances the purchase directly through the person or entity selling it. This often occurs when the prospective buyer cannot obtain funding through a conventional mortgage lender, or is unwilling to pay the prevailing market interest rates. The seller may agree to owner financing if he or she is having difficulty selling the property.

Owner financing may only cover part of the purchase price, with a smaller bank loan making up the difference.

Also known as "creative financing" or "seller financing".

INVESTOPEDIA EXPLAINS 'Owner Financing'

Owner financing is common in a buyer's market. In order to protect his or her own interests, the seller may require a higher down payment than a mortgage lender would. Down payments of 20% or more are not uncommon in owner financing. The deed to the property is usually not transferred to the buyer until all of the payments have been made, but because no institutional lenders are involved, the overall terms of financing are much more negotiable, and can be set up to provide benefits to both the seller and the buyer. The buyer saves on points and closing costs, while the seller can obtain monthly cash flows that provide a better return than fixed-income investments.

RELATED TERMS
  1. Reduction Certificate

    A document signed by a lender stating the outstanding amount ...
  2. Seller Financing

    A real estate agreement where financing provided by the seller ...
  3. Wrap-Around Loan

    A loan that is most commonly used with property with an outstanding ...
  4. Conventional Mortgage

    A type of mortgage in which the underlying terms and conditions ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Deed

    A legal document that grants the bearer a right or privilege, ...
Related Articles
  1. Financing Basics For First-Time Homebuyers
    Home & Auto

    Financing Basics For First-Time Homebuyers

  2. Mortgage Points: What's The Point?
    Credit & Loans

    Mortgage Points: What's The Point?

  3. Avoiding Foreclosure Scams
    Personal Finance

    Avoiding Foreclosure Scams

  4. The Benefits Of Mortgage Repayment
    Home & Auto

    The Benefits Of Mortgage Repayment

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center