Owner financed properties are a very good choice if you are unable to get financing in your home country. It is a type of credit that is outside of the countries regular credit system. The two parties are free to come to their own agreement (within the bounds of the law). This means that foreigners that otherwise could not get financing in the country can buy a house.
Owner financing often feel like a safer alternative for both buyer and seller if both of them are from the same part of the world and are used to the same business culture. They can make the deal in accordance with the culture they are used to regardless of the culture in the country where the transaction is taking place.
There are two different types of owner financing:
- Owner financing where you are buying the house from its former owner. Usually also a foreigner.
- Developer financing where the property is still owned by the developer and he is offering you financing.
The first type of owner financing is usually a very good choice. The second type of owner financing is usually not very good. Although financing provided by the developer can be a good alternative in slow markets where the developer is eager to promote sales.
Second hand owner financing
You are free to negotiate your own terms when you buy a property using owner financing provided by the previous owner of the house. You can negotiate a deal that is beneficial for both of you. It is not uncommon that owners offer interest free financing when they want to sell a property abroad quickly without any problems. This allows them to sell the house quickly and get a down payment while you get access to free credit.
Owner financing of this type is usually only provided with a short time frame. The property should usually be paid within 3 or 5 years.
It is only a small percentage of all houses that is available with owner financing. The number is even lower if you want 0% financing. This means that you will have a smaller selection of houses to choose from if you want to use owner financing.
Internet is the easiest way to find properties with owner financing. They are sometimes listed through brokers but it is more common that the seller sell them through classified sites or their own webpage. All to keep transaction fees down. The brokerage fees in some countries can be as high as 5-10% which makes it hard to sell a house with owner financing. The entire down payment would go to the broker.
Use google to search for “location + Owner financing available” to find properties in the area you are looking to buy something in. It can also be a good idea to search Craigslist.
Financing provided by a developer is usually expensive. It is very common that the developer is working with a financial institute and that he gets a commission for bringing them new customers. This means that you are getting a loan that is good for him but not necessarily the right option for you. This type of financing is often more expensive than the financing you can find at home. The developer only offer financing if it is beneficial for him. He partners with a credit institute to be able to sell more properties, not out of the goodness of his hearth.
Do no fall for 0% developer financing?
You can some times see developers that offer properties with a 0% interest rate. This might seem like a great deal but the truth is that you will still end up paying the same amount. A developer that want to offer 0% interest rate usually consider this when he set the price of the property. He raise the price by a certain amount to offset the loss of revenue from the 0% interest rate. Lets look at a simplified example.
|Year/Price||50 000 with 10% APR||65 000 with 0%APR|
|1||5000 paid in interest||0 paid in interest|
|2||4000 paid in interest||0 paid in interest|
|3||3000 paid in interest||0 paid in interest|
|4||2000 paid in interest||0 paid in interest|
|5||1000 paid in interest||0 paid in interest|
|Total price||65 000||65 000|
The example shows how a developer can raise the price to 65 000 and make the same profit as he would have made if he charged a 10% interest rate even though he is now offering 0% financing.