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No Money Down Technique: Owner Financing

Owner financing is the most common way to buy a property with "no money down".  Instead of getting cash at closing, the seller agrees to finance all or some part of the purchase price. What this means is the owner of the property will act as a bank and lend the buyer all or part of the money needed to purchase the property.

It is estimated that nearly 35% of all the properties in the United States are owned free and clear (no mortgage financing).  A surprising number of those owners would be willing to finance all or part of the purchase price as a mortgage and take payments over an agreed upon period of time.

Generally, you will be getting a second mortgage from the seller.  That means you will get the majority of your financing (the first mortgage) from a primary financing source like a bank.  The seller would provide most or all of the balance in the form of a second mortgage.

There are four types of owner financing to that you could ask for:

  • Deferred Payments:  Although the seller will not go for this option most of the time, it’s certainly worth asking for in the beginning.  This creative financing technique simply defers the repayment of the principal until a specified future date.
  • Principal-Only Payments:  This is a monthly (or quarterly) repayment plan where 100% of your monthly payments are going towards the repayment of the principal.

Example: The seller agrees to finance $100,000 over 20 years with a monthly payment of $417 per month.  ($100,000 divided by 240 monthly payments.)

  • Interest-Only Payments:  With interest-only payments, you will make monthly payments to the seller for a fixed period of time.  After that period expires, known as the "balloon" period, you will need to pay off the entire amount of the principal balance.  You would typically do this by either selling the property or refinancing it.

Example: The seller agrees to finance $100,000 at 7% over 5 years.  The monthly payment at 7% simple interest works out to $583.33 per month.

  • Principal and Interest Payments:  This is similar to the interest-only payment option except the monthly payments add principal reduction as well.  Since the principal and interest payments are amortized over a period of time, the longer you negotiate the amortization period, the lower your payments will be.  You will still likely have a balloon payment after a specific period of time (i.e. 5 years).

Keep in mind that market conditions can affect a seller’s willingness to extend owner financing.  In a buyer’s market, when homes are more difficult to sell, owners are more inclined to be creative and do whatever it takes to help sell their property.

Conversely, in a seller’s market, when homes are selling quickly, property owners have less incentive to extend financing.

  1. Comment by Mark Schlagenhauf
    January 20th at 10:08 am 

    HOAP HOMES is an ownership program that provides homes to buyers regardless of credit. With at least 10% down, the buyer can buy a HOAP HOME. It’s simple: pick a home, apply money down, move in.

    Check out HOAP HOMES. It is owner financing!

  2. Comment by Joe Manausa, MBA
    January 20th at 5:55 pm 

    Nice article Marco,

    Are you finding in your market area that banks are less willing to do 80% LTV loans (with seller holding second 20%) than they were in the past?

    In Florida, this is the case. We are “relearning” all of our creative financing procedures as the money markets have changed as much or more as the real estate market.


  3. Comment by Marco Santarelli
    January 20th at 11:04 pm 

    Lenders have tightened up. One way to do it is to have a side agreement with the seller to carry a second mortgage after the close, while the buyer closes (temporarily) with 20% down. However, the buyer needs to be careful that they are not committing mortgage fraud.

  4. Comment by Joe Manausa, MBA
    January 21st at 4:50 pm 

    The new lending rules that have kicked in require buyer and seller to sign a separate document stating there are no other “side” agreements. I suspect private mortgages will be one the more common solutions to this.


  5. Comment by
    January 27th at 8:22 pm 

    Great article! Owner financing and Subject2 investing are my favorite techniques that I use daily. They’re so versatile that you can bend and mold them in so many ways to make a deal a great deal.

  6. Comment by Helen Murphy
    February 2nd at 8:24 am 

    I want to buy a home. I am looking at a home that has been TOTALLY RENOVATED FROM GROUND UP. The only thing that was NOT replaced was the plumbing system. New roof & sofits,ac,hotwater heater, new walls, new hardwood floors, new carpet in the bedrooms (3),new bathrooms, new windows with marble shelves, new fans in everyroom, a family room with new tile flooring and all new windows, all new appliances (except refridgerator) and all new cabinets in kitchen. I can’t remember anything else, but there could be more. They are asking $89,000.00. It appraised last year at $83,500.00. Can anyone from Hoap Homes finance this house for me? I am divorced and working 2 jobs to make ends meet.
    Awaiting Your Response,

    Helen J Murphy
    208 San Juan Circle
    Melbourne, Florida 32935

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