One of the calls I seem to be getting more of involves the buyer or the buyer’s agent asking, “Will the owner provide financing?” Since these calls are typically regarding property I have listed, I usually try to do a little research regarding the need for owner financing. Fortunately, most of the answers are honest.
Not too long ago, a statistic was released suggesting that over 20% of the people asked thought it was “okay” to walk away from a mortgage in which the holder was in over his or her head. In layman’s terms, I think that means one in five people find it acceptable not to pay back the money they’ve borrowed.
That must have included one call I had requesting owner financing. In reply to my question regarding why owner financing was being sought I got the explanation that the potential buyer for my client’s property was “walking away” from the house and mortgage he currently owned. He is desparate for a place to live and has a “small” downpayment.
And I’m supposed to suggest my seller client offer financing to this person?
I am not unsympathetic to those who have fallen on hard times, but I also do not think sellers should make bad decisions. It’s also no secret that lenders have “tightened up” lending standards–there are very few circumstances that suggest a seller should become a lender with low standards. For that matter, it’s not a particularly good time for a seller to become a lender with high standards.
Currently one of out ten mortgages is delinquent according to Real Estate Economy Watch. This is over 20% higher than a year ago. Foreclosure rates are over 50% higher than a year ago and there doesn’t seem to be any indication things are going to improve much in the immediate future.
If you are selling remember that “owner financing” in almost any form means you are loaning money to the buyer. Typically, owner financing is being requested because the buyer can’t get financing through a bank. There’s historically been a false sense of security with owner financing because the seller can always “take the property back.” Before you owner finance you might want to explore how difficult and expensive that is… and be sure you are making an informed decision.