Education
How owner financing works
Owner financing can open doors, but it does not eliminate qualification. Sellers may still review credit, income and ability to repay, and applicable lending laws must be followed. OWC RE does not provide loans or guarantee approval.
What owner financing means
With owner financing (also called seller financing or 'owner will carry'), the seller acts as the lender for part of the purchase price. The buyer pays a down payment and then makes monthly payments to the seller under a promissory note secured by the property.
How down payments work
The down payment is the cash paid at closing. The seller-financed amount is simply the asking price minus the down payment. Larger down payments usually mean lower monthly payments and more negotiating leverage.
Interest-only vs. amortized loans
An amortized loan pays down principal with every payment, so the balance shrinks over time. An interest-only loan's payment equals the loan amount × annual rate ÷ 12 — the balance generally stays the same unless extra payments are made.
Balloon payments
Many seller-financed loans calculate payments over a long schedule (e.g. 30 years) but require the remaining balance to be paid in full sooner (e.g. after 7 years). Buyers usually plan to refinance or sell before the balloon date — plan for it carefully.
Evaluating CAP rates
CAP rate = Net Operating Income ÷ Price. NOI is effective income after vacancy minus operating expenses — it excludes mortgage payments, depreciation and income taxes, so it measures the property itself, before financing.
Estimating cash flow
Annual cash flow before taxes = NOI − annual loan payments. Cash-on-cash return compares that cash flow to the total cash you put in, including down payment and closing costs. DSCR (NOI ÷ debt service) shows how comfortably income covers payments.
Questions buyers should ask a seller
Is there an existing mortgage on the property? Will you run credit or verify income? Is there a prepayment penalty? Who services the loan and holds the documents? What happens if a payment is late?
Questions owners should consider
How will you screen a buyer's ability to repay? Do lending rules in your state or province apply to you? Will you use a licensed loan originator, attorney or loan servicer? How will taxes and insurance be verified?