Owner financing provides an alternative to traditional commercial real estate loans. When buying a property, you agree to pay the seller directly rather than going through a bank or other lender.
For most buyers, owner financing isn’t their first choice. But getting a commercial mortgage isn’t always easy, and sometimes buyers get turned down for traditional loans. If you need the property but can’t get the loan to pay for it, what do you do? Well, you could give up―or you could turn to owner financing.
So how does owner financing work? Well, once a buyer and a seller agree to go with owner financing, they have to come to agreement on the terms and conditions.
Just like a normal commercial mortgage, owner financing will have an amount that’s being financed, interest on that amount, a payment schedule, etc. In most cases, the seller will also require the buyer to make a down payment―again, just like a traditional mortgage.
Once they have that agreement, they make it formal. This takes the form of a promissory note, a document that lays out all those details, and a mortgage or deed of trust, which is essentially a lien on the property being sold.
After that, as with any loan, the buyer makes scheduled payments, and everyone’s happy. Or are they? Because as it turns out, owner financing isn’t right for everyone.