In this article, you will learn about owner financing, its pros and cons, and how you can find owner financed homes in Oklahoma.
Oklahoma offers a low cost of living and non-existent rush hour, among other things. This is why the city has become a desirable place to live in for people who are tired of high prices and heavy traffic. It is no wonder why the city population grew by 12.9% since 2010, according to the US Census Bureau. The majority of new residents come from densely populated states like California and Texas. Most of them want to keep their urban amenities minus the stress of city-living.
This steadily rising trend is a great opportunity for real estate investors like you to buy a rental home in Oklahoma.
But what if you are not able to qualify for a traditional mortgage? After all, financial institutions have rigid procedures for loans. This has prevented many aspiring homebuyers from affording the house of their dreams. First-time investors or those who lost their rental income in the last year may also be facing the same problem.
If you can relate to this issue, know that there are other ways to finance the rental home you wish to buy. One of them is owner financing. You can read all about it in this article, which covers:
- The definition of owner financing and how it works
- Advantages and disadvantages of owner financing in Oklahoma for homebuyers
- How to find owner financed homes in Oklahoma
What Is Owner Financing?
Owner financing is a payment method that lets you pay for a home without relying on a traditional mortgage. It is sometimes called “seller financing”. With this, the homeowner or seller finances the sale.
When buying owner financed homes in Oklahoma or anywhere in the US, expect to pay a higher interest compared to the current mortgage rates. You will also have a balloon payment due after at least five years. Owner financing benefits both buyer and seller as it removes the need for a lender, appraisal, and inspection. This simplifies the real estate transaction.
Owner financing also requires you to make a down payment on the property you wish to buy and pay off the rest over time. But it is usually more expensive and requires full repayment or refinancing into a traditional loan in at least five years.
How Owner Financing Works
When you find someone selling owner financed homes in Oklahoma, expect them to do some form of a background or credit check on you. But unlike a bank, they are usually not as stringent with their requirements. If you are unqualified to take out a traditional loan, then this option may be for you.
Because you are not involving a bank in your real estate transaction, inspection and appraisal are optional. Owner financed homes are usually sold as-is, though, so even if you do an inspection, you may not be able to ask the seller to make repairs or upgrades. But getting this and an appraisal done can help you get the true market value of the property.
Once you have closed the sale, you will make monthly payments to the seller according to the amortization schedule that you both agreed upon. Unlike a traditional mortgage, you and the seller can tailor your arrangement based on your needs and preferences.
Advantages of Investing in Owner Financed Homes in Oklahoma
If you are looking for an alternative or at least an easier way to finance your home purchase, owner financing is a great option for you. Here are some of the advantages of buying owner financed homes in Oklahoma:
#1: Easier Access to Financing
Most traditional lending institutions have strict requirements for them to approve loan applications. Depending on your financial situation, you may not qualify for their conditions. But with owner financing, your background and credit history have to be acceptable to the owner for them to agree in extending their credit to you.
#2: Quicker Transaction
When taking out a home loan, you need to arrange for things like home inspection and appraisal before you can get your loan approved. With owner financing, you will not have to do these, thus shortening the time it will take for you to close the deal. Of course, getting a home inspection and even an appraisal would help you determine if the house you want to buy is still worth investing in.
#3: Reduced Closing Costs
You will not have to deal with costs related to mortgages such as bank fees and private mortgage insurance (PMI). This is because you are loaning from a seller instead of a bank. But if you are planning to do an appraisal and home inspection, you will have to pay for those at closing.
#4: Lower Down Payment
Another hurdle for some homebuyers is the minimum down payment imposed for mortgages, which can still be too high for them to afford. When buying owner financed homes, you can negotiate to make a lower down payment.
#5: Tailored Financing
Unlike conventional loans that already have set terms, you and the seller can choose from a variety of loan-repayment options like:
- Interest-only: You will only pay the loan interest for an initial period or the entire loan duration before making full payment at the end.
- Fixed-rate amortization: Your interest rate does not change for the entire duration of your loan.
- Adjustable rate: After an initial fixed period, your interest rate can change depending on the market.
Disadvantages of Investing in Owner Financed Homes in Oklahoma
While owner financing offers a lot of benefits for buyers, you need to be aware of certain conditions and risks:
#1: Higher Interest Rates
Sellers of owner financed homes in Oklahoma will face the risk of non-payment. This is why they will likely charge higher interest rates. If you find the seller’s desired interest rate too high, try to negotiate. You can offer a higher sale price, more down payment, or shorter loan duration.
#2: Balloon Payment
Depending on federal restrictions, you may have to make a balloon or lump sum payment after several years or at the end of your loan.
Before entering into this arrangement, make sure that you can afford this by the time that balloon payment is due. If you plan to use the property as a rental, you can use Mashvisor to calculate your investment payback balance and determine if you can afford to pay the required lump sum.
#3: Seller Approval
Just because you find a seller willing to offer owner financing does not automatically mean that they would want to do it with you. If they do not find you creditworthy, they may decline your proposal. However, you can still try to negotiate by increasing your down payment or letting them keep the property title until you have made the full payment.
How to Find Owner Financed Homes in Oklahoma
Owner financing is an uncommon arrangement, but there are ways you can find homes that offer this.
#1: Real Estate Listing Websites
Many real estate listing websites include owner financed homes in their database. A great platform that you could check out would be Mashvisor’s Property Finder. There, you should find out if a certain listing offers owner financing by looking at its description.
But just because a property can be purchased with offer financing does not always mean it is a great deal. Before contacting the seller, run the numbers first using our Investment Calculator. This tool has already estimated the rental income and other expenses based on comparable properties in the area, but you can change them if you already know the amounts.
After configuring these as well as the mortgage calculator, you should see your expected cash flow, cash-on-cash return, cap rate, and 10-year investment payback balance. Then you could either tweak the numbers like rental income, repair costs, and furniture expenses until you get your desired results. Or you could also decide on whether to invest in this property.
#2: Real Estate Agents
Realtors usually have insider knowledge on deals that are not publicized or widely advertised. You will have an easier time finding these out if you ask a professional that you have a good working relationship with. They might also introduce you to a seller who would be motivated to offer owner financing. Aside from this, they can help you negotiate better loan terms and close the deal.
#3: FSBO Listings
Houses for sale by owner in Oklahoma City, OK are likely to be willing to offer owner financing. Since the homeowner is selling their property themselves, they alone may be deciding on how to sell their property.
Of course, you need to gain their trust first. Aside from pitching your creditworthiness, tell them about owner financing: what it is, how it works, how it will benefit them, and any risks they should know about.
Many Oklahoma City homes for sale by owner are not on the multiple listing service (MLS) database, but you can find them on certain real estate websites like Mashvisor, which allow owners to list their property.
#4: Rental Listings
Aside from FSBO homes, you may be able to buy a property even if it is for rent instead of for sale. If you find a rental property that you would like to invest in, reach out to the owner and ask if they would be interested in selling it to you with owner financing. You might encounter someone who no longer wants to be a landlord but would want to hold on to their monthly income.
Some real estate websites also display listings that are for rent. You just have to select the “Rent” option on their search bars. Mashvisor mainly helps investors who are looking to buy a residential property to rent out, but we also show off-market properties that may catch your eye. If you do find one, you can connect with the registered owner using our platform.
#5: Negotiating With the Seller
If you find a house on the market that you like but does not mention owner financing, you can still negotiate this in your offer. First, however, you need to make sure that the seller’s ownership is free and clear of an outstanding mortgage or lien. If you end up buying a property with these encumbrances, you may end up losing it even if it was the seller’s responsibility to pay for them.
After you have verified that the property’s title is clean, make a cash offer that is lower than their asking price. But also include that you would be happy to pay more if the seller agrees to finance your purchase. This strategy should at least open the door for further discussions, even if the owner has never heard of owner financing before.
Find Owner Financed Homes in Oklahoma With Mashvisor
Owner financing, also known as seller financing, is a great loan alternative for investors and homebuyers who are not qualified to take out a mortgage. With this arrangement, they can close the sale quicker, reduce their closing costs, lower their down payment, and even tailor their financing terms.
But owner financing has its disadvantages, too. You will have to pay higher interest rates compared to traditional loans and make a balloon payment after several years. On top of these, you also need to get the seller to agree to enter this arrangement with you.
While this type of payment is uncommon, you are sure to find properties that you can buy with owner financing. Here are some ways to do that:
- Browse real estate listing websites like Mashvisor;
- Talk to real estate agents in your network;
- Reach out to owners of FSBO listings;
- Offer to purchase properties that are for rent; or,
- Make an offer on a house that you like with owner financing instead of cash or mortgage payment.
When talking to the seller, remember to earn their trust by showing your good credit and telling them about the benefits they will get from financing your purchase. And when you are ready, you can use Mashvisor to search for your next investment property. To learn more about how Mashvisor can help you find profitable investment properties, feel free to schedule a demo.