Difference Between Banks vs. Owner Financing

It can often be difficult to get a loan from banks, this is among the reasons why owner financing is growing in popularity among real estate buyers.  Among the many benefits of owner financing, the seller often accepts a lower down payment as compared to banks who often charge 20% or even more.  Additionally, several owner financed properties can be obtained without a credit check.  This is particularly good for anyone who has a few flaws on his/her credit report, which causes banks to charge a higher than regular interest rates.  An individual, or real estate developer, who is in the business of providing owner financing will likely extend financing to anyone who agrees to keep the payments current.

In recent years, the internet has become a hub for owner financing properties while also providing plenty of lending opportunities for anyone who wishes to apply for a loan from banks.  Currently, a lot of the major internet auction sites have a category that is specifically designed for buying and selling real estate.  These categories are more often used for owner financing options related to land purchases, but buyers will find a few homes sprinkled in now and then.  From a mountainous retreat to a tropical island paradise, there is owner financing for land in these and other areas.

Customers who wish to apply for loans from banks will find a variety of credit and loan resources online.  These sites offer a customer the ability to have banks competing for their business.  According to these sites, offers may begin arriving within hours.  Not everyone will be approved, however, as there are a number of deciding factors that banks look at when deciding to extend credit.  Among them, the customers credit history, debt to income ratio, ability to repay the loan and the presence of regular income. 

Loans that are obtained through banks will require documentation, which may include previous 2-3 years of tax returns, current pay stubs and/or proof of employment.  If they own land, individuals who are interested in buying or building a home will find that they have more success with banks.  The reason is because the land will become partial collateral for the loan and, if the buyer defaults, banks will foreclose on both the house and the land.  In addition, many land owners do not have to come up with the money for a down payment as the equity in their land will serve as the down payment.

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