Owner Financing in Action
Suppose Sally wants to sell her property to Beth, but Beth cannot secure a traditional mortgage. Sally agrees to finance the sale, and they establish these terms:
- Sale Price: $200,000
- Down Payment: $20,000
- Loan Amount: $180,000
- Interest Rate: 4%
- Term: 15 years
- Monthly Payment: $1,331.44
An attorney prepares the promissory note, detailing payment due dates and default terms, and Beth signs the agreement. Beth now owns the home and pays Sally monthly. If Sally decides she prefers a lump sum instead of monthly payments, she can sell the note at a discount to a note buyer, such as Liberty Note Investing, after establishing a reliable payment history.
For example, if Sally decides to sell the note after 12 on-time payments, the remaining balance would be $171,060.02. A note buyer might offer $151,087.80, based on a 6% return rate, covering appraisal, title, and transfer costs. Sally then completes the assignment, and the note buyer wires the funds upon receipt. This scenario illustrates owner financing as a flexible alternative to bank financing.