hey Kyle here with Kyle secrets.com
today we're talking about is owner
financing a good idea so I was asked to
give some pros and cons of owner
financing this is also called seller
financing so this is the video so first
of all owner financing seller financing
they're both interchangeable they're
basically the same thing and what this
means is instead of going through a
regular lender with owner financing
you're having the seller of the property
or the owner of the property what
they're going to do is they're going to
function like the bank so instead of
getting a loan through a lender or a
bank or a credit union or a broker
you're going to get a loan through the
owner they're going to provide financing
so they might own the house in cash and
then they're giving it to you through a
loan that they give or they might have
their own mortgage and then you could
double mortgage on that property the
owner has a mortgage and you have a poor
kitc and it can get a little risky so
the reason you would want to do owner
financing or seller financing is because
you might not be able to qualify for a
traditional mortgage a traditional
mortgage is going to be a lot cheaper
and safer over a long period of time but
they're a little tighter to qualify for
it they're a little more difficult to
qualify for owner financing those terms
are completely up to the owner they can
lend out money to whoever they want to
because there's no regulations that
dictate owner financing except things
like you know owners can't discriminate
in their lending okay so let's explore a
little bit of what this looks like some
pros and cons this is gonna be a little
bit dense but hopefully this should
clear it up for you if you want to do
owner financing so let's first talk
about some pros why would you want to do
owner financing in the first place okay
so to begin with faster closings you're
not going to have to worry about the
normal 30-day process that it takes to
close a loan you don't have to worry
about coordinating a seller selling the
house and appraisals and inspections and
going through the loan process none of
that matters it's just through the owner
so if they want to give you the loan and
start it next week they can do that okay
also cheaper closing
kind of okay so the owner won't
necessarily charge fees like you had to
normally experience in a regular
mortgage so you probably won't have an
appraisal cost you probably won't have
any underwriting fees you probably won't
have title fees those are probably
already paid by the owner when they can
have the property to begin with but in
exchange for cheaper upfront fees you're
going to notice that it's more expensive
in the long run and what's happening
here is you know owner financing kind of
sometimes functions more like renting
than actually owning and we'll get into
that in a second okay also super
flexible so this is big there's no
government minimums there's no federal
guidelines that means that if the owner
says they're willing to give you money
great they'll give you money they might
run a credit check or they might ask for
some documents but most of the time that
doesn't happen they might just want a
couple things to to see if they're
you're somebody that they want to lend
to and most of the time these situations
are you know if they know you they have
a history with you then they're more
willing to give you money it's very
difficult to find just a random stranger
to do owner financing because it's very
risky for the owner so this is good if
you can't qualify but overall it's just
an okay strategy all right this is a
good short-term solution I would argue
that renting is probably better than
owner financing just because there are
some risks to it but we can talk about a
little bit that with the cons as well
okay so big con is high interest all
right so with a land contract that's a
one type of owner financing or any other
type of owner financing you're going to
see those interest rates probably be
double to triple the average interest
rate on a mortgage on a traditional
mortgage so if interest rates right now
for instance in the market that we're in
right now interest rates are hovering
around three point five percent on
average as what I'm seeing in my
pipeline with my clients refinances that
I'm looking at to do with people who are
in land contracts I'm seeing anywhere
between eight and ten percent
restrain okay so something to be careful
of you know this is a short-term
strategy owner financing should not be a
long-term strategy and we'll talk about
that in a second also it's going to be
very difficult to find you're gonna have
to need or look for special offers or
connections so most the time people
don't want to give out money to other
people who can't qualify for a regular
mortgage why they got turned down for a
regular mortgage because they are a
risky buyer and that means they're
probably gonna be a risky buyer for the
owner so most the time individuals don't
want to lend out that much money if they
feel like they're not going to get that
money back so what you might have to do
is be on the lookout for anything that
says owner financing or seller financing
they're hard to come by but they do
exist also there are quite a few
Realtors who will actually do owner
financing on their own because they want
to get properties moved or they already
know you so they have a history and are
willing to lend you money because they
know you a little bit more also this is
pretty big
this is owner responsibility so what's
happening is you're having two mortgages
stacked on top of each other so
sometimes you're the owner of the home
either
has their home paid in full okay and
then you have less chance of you know
them getting foreclosed on maybe if they
don't pay their taxes but what often
happens with owner financing is the
owner themselves has a mortgage and then
what they do is they offer you a
mortgage on top of that mortgage so
you're both paying down a mortgage on
these properties and what's risky about
that is if the owner decides to pocket
your money but not pay their mortgage
that mortgage gets foreclosed on so does
yours
so that's just something to look out for
if you are going through with that
solution you want to see how is this
actually being set up is the money that
the home is secured with is it against
the property or is it cleared okay
balloon payments are something that you
need to watch out for most things like a
land contract have an expiration date
meaning that they'll say a sort
date and time you have to purchase the
property or move out and sometimes
moving out means you get no equity from
it so that's what's called a balloon
payment that means that the mortgage is
actually short term it might amortize
over thirty years meaning the payment
looks like a 30-year mortgage but the
balloon is four five meaning that
expires in five years and you need to
either buy it in cash refinance with a
traditional mortgage or move out of the
property also this does not record on
credit so this does not help your credit
score and this is a really big one
because if you're going with owner
financing your credit probably isn't the
greatest meaning that you need to work
on it
that's probably why if you're looking at
order financing you might not be able to
qualify for a regular mortgage because
maybe your credit needs some work
having on-time payments record on your
credit report is wildly beneficial to
increasing your score so if you go with
owner financing and it's not recording
on your credit report then it's not
helping you at all it's not helping you
build your credit now renting most the
time doesn't show up on your credit
report sometimes it does sometimes you
can't find rental companies who will put
rent payments on your credit report but
it's not helping you at all by not being
on your credit report also the owner
might not record it with the county
meaning that you have no true ownership
of the property this is the biggest one
that I actually see a quite a lot people
think that they own the home they think
that they're on the title of the
property but the owner never records
that the land contract or whatever
contract they're using for owner
financing with the county and so they're
never put on title meaning they never
have ownership of the property I have a
couple land contracts I'm working with
right now where we can't even refinance
them because they're not on this hide
all the property they have to go through
with a purchase which makes it a lot
more difficult and a lot of extra layers
in there so now let's talk about what do
we look for so if you are going to go
through with owner financing first of
all
check and make sure that you have
options to look for a regular mortgage
you're going to save so much money by
going with a traditional mortgage even
though it's a little bit more complex to
qualify with make sure you're calling
around with local lenders find which
ones are going to give you some advice
maybe you're just in a six month game
plan or even a year long game plan maybe
it's only a month long game plan to get
you to be able to qualify for a regular
mortgage make sure you find all those
options first before you get into
something costly like owner financing
but if you do go with owner financing
what do you want to look for okay don't
worry about the rate the rate does not
matter because this is a short term
strategy I like to call this the bridge
okay
and what's happening in the bridge is
you're going from something owner
financing like a land contract okay
and you're gonna be in this lane
contract for a few years okay so let's
say maybe three years and maybe in that
three years you're working on building
up your credit okay so then maybe your
credit started out at five hundred and
now your credit is up to a 640 okay so
then you take your land contract
refinance it into something like an FHA
or a conventional loan alright so all
you're doing with that land contract is
you're just using it you're just using
the owner financing to build equity pay
down a mortgage and then refinance into
a better lower-cost loan in the future
so don't worry about the rate it's gonna
be high no matter what even if it's
upwards of eight ten percent I would
that's what I would expect for a land
contract it's just a risky that's why
you need to find other types of money
first like a traditional mortgage and
then look at owner financing so instead
of worrying about the rates focus on
dangerous features so make sure we do
not want it to be interest only interest
only as a dangerous feature it's not
paying down the principal of your
mortgage watch out for balloon payments
so when does that contract expire look
out for not being recorded on the title
make sure that you have ownership of
that property and then watch out for any
other terms that allude to fees or costs
in the future for instance how much of
your payment is going to go towards the
principal are you gonna get any type of
money back towards a down payment if you
purchase the property if you
finance the property look at those terms
look for the dangerous features instead
instead of the and the rate okay
so you're gonna want to stay within your
long term budget that's the biggest
thing you need to watch out for consult
your budget first if you can only afford
a thousand dollars a month don't go into
a land contract that's $1,200 per month
all right and then finally have an exit
strategy all right again this is all
about a bridge you're using the land
contract and then refinancing into a
better deal so the whole time you're in
a land contract you need to be planning
the next steps okay cuz that land
contract and max should be about three
to five years for you before you
refinance into something else or you
move out and you purchase something else
so you now have three to five years as a
window to do work okay so this means
working on your credit working on your
income building up savings those are all
things that you have that you need to do
in that three to five year window and
the way that you can figure out what you
need to do if you're not sure is consult
a mortgage advisor and a credit repair
specialist the mortgage advisor is going
to see where you're at and tell you what
you need to change to qualify for a
regular mortgage and the credit repair
specialist is gonna be someone who's
going to give you advice on how to build
your credit up in the future okay so all
know owner financing is an okay idea if
you can't qualify for a regular mortgage
it's gonna be more expensive and should
be a short-term play for you that just
buys you time to work on income credit
assets that way you can purchase with a
regular mortgage in the future thanks so
much for watching this video