Buying A Home Through Owner Financing
Some home sellers are able to provide financing for a purchaser to buy their home. A seller's willingness to finance the sale can be helpful for self-employed individuals without a long history of business ownership. Self-employed individuals in search of a home can sometimes find the ideal property by following up on home advertisements that mention the availability of seller financing.
A small percentage of homes for sale include a notation in the property description that owner financing is available. Homes sold with seller financing often have no existing debt to pay off. Therefore, the sale does not hinge on the buyer obtaining a new mortgage. Because of the financing, the factors to consider when buying a seller-financed home differ slightly from when obtaining a new mortgage.
Income of the buyer
Traditional mortgage lenders typically require borrowers to demonstrate a record of consistent earnings. As a self-employed individual, you will need to demonstrate that your income is steady and predictable. A prospective home seller is likely to require copies of your income tax returns. If you are a sole proprietor, IRS Schedule C is a good measure of your business income and expenses.
Down payment
Home sellers who provide financing typically require a down payment in order to make the arrangement feasible. The down payment is usually enough to cover legal expenses in the event the buyer becomes unable to fulfill the terms of the loan. A seller-financed mortgage is a legally binding contract, so professional assistance is likely necessary to complete the legal details of the transaction.
Document preparation
The right to foreclose usually accrues to a mortgage company after the nonpayment of a loan. With owner financing, the seller has a similar right. In addition to a promissory note, a mortgage deed applicable to your state usually must be prepared and filed. An appraisal may be necessary to determine the fair market value of the property. An amortization schedule is essential to apportion the principal and interest amounts in each payment.
Tax deductions
A seller-financed mortgage provides the same tax benefits as a traditional mortgage. However, a seller who holds the mortgage on their former residence is not required to provide the buyer with a Form 1098 tax document. Instead, your amortization schedule can be used to calculate interest paid. If you itemize deductions, there is a designated line on IRS Schedule A for entering mortgage interest not reported on a Form 1098.
Owner-financed mortgages may contain a provision allowing the buyer to pay off the loan after a few years. After establishing a longer period of earnings, you might prefer to refinance. Contact a sales agent to assist in your search for motivated home sellers.