These days, due to the upside down of the mortgage industry and the soft real estate market, both buyers and sellers have to be creative in buying and selling homes.  Limiting yourself to conventional financing could be limiting yourself to home ownsership since conventional financing is becoming increasingly difficult to qualify.

When buying a home for sale under Owner Carry terms, it means the current property owner finances part or the entire sale, usually through a second mortgage, although sometimes the owner will carry the entire loan.  There any benefits to an owner-carry installment sale to both buyer and seller when it is structured properly. 

There are a couple of benefits to the seller.  Of course, any seller wants the highest price possible.  Getting it in cash makes it even nicer.   The less ‘out-of-pocket' expenses the better so paying less on taxes is also a plus.  So, here are the ways an installment sale can be better than a more traditional conventional mortgage sale.

The seller can often get more for the house because they don't have to go through all the traditional steps (i.e. appraisals), especially if the seller offers flexible terms for financing. 

Note, typically, owner financing involves balloon payments, since the monthly payments are frequently interest only. This means that the buyer must pay the balloon loan off in cash or refinance the loan at current market rates.

Would it be necessary for the new owner to pay all cash payment?  For most sellers, this isn't necessary.  Usually, the seller has all sorts of expenses with the sale of the house through traditional means such as closing costs, title insurance, broker fees and the balance of the existing financing.  Sellers also have to be aware of payment of capital gains taxes to the federal government.  If the seller goes the installment method, there will be more of a yield than any source that an all cash deal would have produced.

Have you ever endured the lengthy process entailed to finance a home through conventional means?  Then, you might have a greater appreciation for the fast closing using Owner Carry.  Also, most standard real estate contracts contain financing contingency, you may end up back at square one if your buyer does not qualify.  So many different people have to get involved and the house needs to be in a certain condition in order for it to pass inspection.  This can take several weeks to several months by which time the seller may lose the buyer.  An owner-carry transaction can be taken care of, sometimes, in a matter of days to weeks.  This can save on all sorts of ‘opinions' that must be gathered from other sources before a sale.  It can also save thousands in real estate fees.

With an installment sale, you only have to pay capital gains taxes on what you receive for that year.  If the seller has lived in the home for many years, this is a definite advantage.  Also, the seller can combine the sale with an I.R.C. 1031 Tax-Deferred Exchange for further savings.

There are a few benefits to the buyer as well.  Most buyers would prefer an installment sale rather than conventional financing because they don't have to go through the traditional route of bank approval and financing.  In these difficult financial times, buyers are finding it more difficult to get approved for home loans even if they have good credit.  If there have been any credit problems or a divorce, it makes it even more difficult.   Being self-employed or new on the job can add to the difficulties.  If approved for a loan, the interest rate could be so astronomical that it would not be worth the effort and the resulting payment would be too much for the buyer to endure, especially if the rate is a variable rate mortgage.

By purchasing a home through an installment sale, it may give the home owner a chance to improve his credit rating thus enabling him to qualify for a more standard fixed rate loan in the future.

By purchasing a home through an installment sale, the buyer would not have to pay the costs associated with a conventional sale loan.  Charges such as:  points, origination fees, underwriting charges, appraisal, credit reports, and title insurance along with any other fees, will add will be avoided.  

In these days of ‘sound bytes,' many people are ready to move on with their lives quickly.  It is just as true in the home buying market.  By buying through an installment sale, the buyer does not have to go through a third party for any of the financing.  With Owner Carry, the buyer may have a higher purchase price, and higher interest rate (not nearly as high as conventional financing), he/she still has a better likelihood of homeownership as apposed to a conventional sale.