Owner financing means the seller of the home is also the lender. Instead of a bank writing the loan, you make a down payment to us, sign a promissory note and a mortgage, and pay us monthly until the home is paid off. We offer it on our homes in the Upstate. Here is how it works and what to ask before you sign any owner-financed deal, ours or anyone else's.
The paperwork
In South Carolina a real estate closing is handled by an attorney, and an owner-financed sale is no different. With a deed and mortgage, you receive the deed to the home and land in your name, recorded with the county. The seller receives a promissory note, which is your promise to pay, and a mortgage, which gives the seller a lien on the property until the note is paid. The mortgage is recorded too. This is the same structure a bank uses.
Be careful with two other arrangements you may see. A "contract for deed" or "land contract" leaves the deed in the seller's name until you finish paying, which can give you far fewer protections if something goes wrong. A "lease option" is a rental with a right to buy later. Ask which one you are being offered, and have your own attorney read it.
The terms
Every owner-financed loan has four numbers: the down payment, the interest rate, the term in years, and the monthly payment. There may also be a balloon, which is a date when the remaining balance is due in full. Ask for all of them in writing before you agree to anything.
Our terms depend on the home, the down payment and your situation, so we quote them per buyer. Call for terms. In general, expect a larger down payment than an FHA loan. In exchange, the decision is ours rather than a bank's, and we look at your whole situation, including steady income that does not fit a bank's checklist. We still check that the payment fits your income.
Who it fits
Owner financing can fit buyers with steady income who do not fit a bank's box: self-employed people whose tax returns understate what they earn, buyers with a credit problem a few years back, people new to credit, and buyers who have a down payment in a form a bank will not count, like a paid-off truck or tractor.
It does not fit buyers who cannot make the monthly payment. A missed payment on an owner-financed loan can have the same consequences as a missed bank payment, including foreclosure. We would rather tell you no than sell you a home you could lose.
Non-cash down payments
Because we are the lender, we can consider a down payment a bank cannot: a car, a truck, an RV, a boat, a tractor, or equipment, subject to appraisal. We agree on a value in writing and apply it at closing. A lot you already own may also count toward the down payment, or we can talk about building on it.
Taxes and insurance
You own the home, so you pay the property tax and carry homeowners insurance with the lender named as the mortgagee. Apply for the 4 percent owner-occupied assessment with your county as soon as you move in; it can lower the tax bill a lot. Some owner-financed loans escrow taxes and insurance into the monthly payment and some do not. Ask which way yours works.
Paying it off early
Ask any seller whether the note has a prepayment penalty, and get the answer in writing. Some buyers later refinance with a bank once they have equity and a record of on-time payments, and pay off the owner-financed note. Keep every payment record; a lender will want to see them.
Questions to ask any seller offering financing
- Do I get the deed at closing, recorded in my name?
- What are the down payment, rate, term and payment, in writing?
- Is there a balloon payment, and when?
- Is there a prepayment penalty?
- Who closes the sale, and can my own attorney review the documents?
- Is the home titled as real property with the land?
If a seller will not answer all six plainly, walk away. Call us and we will answer them for any home we have for sale in Greenville, Spartanburg, Anderson, Pickens, Oconee, Laurens, Cherokee and Union counties.
