Secrets of Owner Financing Homes in Minnesota

Are you looking for owner financing homes, houses, townhomes, or condos in MN?

In this post I will go over some information on the different types of owner financing real estate and give you the some basic tips and requirements for each.

There are many forms of owner financing each with its own special considerations and benefits. Which form of financing by seller is right for you? This depends on a few factors some of which you control some of which you might not.

What are the major forms of owner financing?
Contract for Deed – Typically the most preferred of owner financing. For more information on how a contract for deed works visit our section.

Owner Seller Carry Back – This requires you to get your own financing in the first position and gives you more benefits than a contract for deed. How does a seller carry-back work, visit here.

Rent to Own – Rent to Own or Lease Option is a form of owner financing where you rent for a period of time and during this time you have the option to purchase the property. For more information on how rent to own works visit this section of our site.

Those three cover the most likely forms of owner financing you will encounter if you are looking for a new home from a seller that offers owner financing. So what exactly would a property owner, real estate agent, realtor, or management company expect from you to get approved?

One thing to keep in mind with any form of owner financing is the owner of the home is essentially acting as your bank. Just as you would have to prove to a bank your ability to afford your new home, there are certain things an owner offering financing will look for.

Up Front Payment Amount
It will be very rare for you to be able to find an owner financed home that will require no upfront payment. This upfront payment from the sellers prospective shows you are serious about not only making future payments on time but serious about making this your home.

For a Contract for Deed down payment required is usually 5 – 15% of the purchase price.

For a Rent to Own or Lease Option you won’t be providing a down payment but an option payment that secures your option to purchase the property. This is typically in the range of 2 - 4% of the option price.

Seller Carry Back, in this current market with decent credit you should be able to find financing at 80% first mortgage, with 10% down payment and the seller carrying back a second mortgage for 10%. Remember this 10% carry back will be factored into your overall payment criteria.

Monthly Payment Amount
Contract for Deed, Monthly payments for a CD will typically be based on an agreed upon interest rate at 30 year principle and interest payment on the balance of the contract after your down payment. For instance, for a house with a purchase price of $100,000, with a $10,000 down payment, and a $10,000 carry back, your payment will be base upon the agreed upon interest rate on $80,000.

Rent to Own, typically monthly payments on a rent to buy will be closer to what market rent. Remember though typically market rent is a little bit lower than what it would actually cost to own the home.

Seller Carry Back, the monthly payment for the carry back will depend on the amount of the carry back. For instance, expect that a seller who carries back 10% to expect a higher rate than a seller that keeps a 5% second mortgage on the property.

Term
Contract for Deed, terms for a CD differ and can last as long as 30 years exactly like a typical thirty year mortgage. Although this depends on the down payment so you can expect terms in the range of 3 – 7 years to be common for most contracts.

Rent to Own, the length of a rent to own typically is 12 – 36 months. Very rarely will you see a rent to own exceed 3 years, although this is not unheard of. It is likely though that it is a much better deal for you to exercise your option sooner than later.

Seller Carry-Back, the term of a typical carry back will depend on the amount of carry back and what you and the seller negotiate. Most carry backs will be at least two years and require a lump sum payoff.

This is just an overview of the basic terms and payments of seller financing real estate, I will in future posts give more detail about the basics and how to find Contract for Deed homes in Minnesota, Rent to Own homes in Minnesota, and Seller Carry Back deals in Minnesota