Since the real estate bubble popped lending standards have tightened. That has lead to a “credit crunch” where people who really have good income and employment history can no longer qualify for mortgages.
This problem has only worsened with the failure of IndyMac and other regional lending institutions.
In response to this financial crisis some of our members are using a very traditional finance method which completely bypasses the banks. They are using ‘owner financing’ to buy unimproved land (raw land) where they then build their mortgage free log home. Here’s some general information about owner-financing:
- Owner financing is when the owner of a property decides to carry the loan for the buyer. Rather than paying a bank, the buyers pay the owner a down payment, and a monthly payment with interest. Essentially, owner financing is when a person sells land by selling a ‘private mortgage’ directly to the buyer.
- Owner financing often involves a smaller down payment than a bank would require. It usually has the same, or slightly higher interest rate. And if the buyer has specific concerns or needs it is often a lot easier to get them written into the loan contract (as opposed to dealing with a banking bureaucracy).
- There are many ways to handle an owner finance situation: land contract, promissory notes and mortgages, lease purchase agreements, etc.
- Sometimes the seller will run a credit report on the buyer (just to make sure there’s no bankruptcy, et cetera). Down payments can be a lot more flexible than with a bank and financing terms can be more tailored for the buyers needs (reasonable balloon payment, lower closing costs, etc).
For more detailed information about owner financing, and buying land in general, we recommend a book called Finding and Buying Your Place in the Country by Les and Carol Scher (you can find it on our recommended stuff page). It will cover how to get title insurance and how to properly file an owner finance transaction. It is a well written, easy to understand book. It not only has owner finance information, it has information about all aspects of buying property. It is really a valuable resource.
So if the real estate bubble and credit crunch have you feeling squeezed you might want to explore the option of owner financing.
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