Ask the Experts
The risks and benefits of owner financing
by Mike Haskew Posted 6/18/2012
Q: If I have an existing log home mortgage, how can I determine whether refinancing is a good idea?
Malmquist Construction/photo by Heidi Long
A: Generally, if a borrower can save one percent on their interest rate it is worth paying the closing costs to refinance. Some lenders have options for “no closing cost” refinances, and borrowers may pay a slightly higher rate for that. Consider the amount of time you will continue to own the home. If you are going to be there long-term, pay the closing costs. If not, go with a no-cost or lower cost option.
—Troy Kennedy, Wells Fargo Home Mortgage
Q: What is the most common error made by individuals purchasing, refinancing, or building a log home?
A: Most of the mistakes we see folks make surround not making the financial component of building a home a priority. It should be front and center, and we see lots of people dream and design with no regard for cost. Another big mistake is not considering what it is you are building and how it fits with the neighborhood. If you are paying cash, this isn’t that big of a concern. If you are looking to a bank for financing, the home that is in someone’s head will need to fit within the neighborhood that they are building in. Banks are not willing to allow you to over-improve an area. Nor do they want to finance the only log home within three counties.
—Andrew West, West & Gasparini Group
Q: I am considering a log home purchase but may not be able to qualify conventionally. What are the risks and benefits of owner financing?
A: The upside of owner financing is not having any underwriting requirements and fairly seamless approval. There are no requirements on the amount of money put down, and the owner will hold a note for you. One concern I would have is that a lender will require title work to make sure the property is free and clear of any liens, and if any are out there they will be resolved and paid off. Unless the consumer is aware of any title issues, they could purchase the property with the lien still on it. What if the owner dies and you have to deal with heirs? How would the mortgage be handled in a probate situation? Retain the services of an attorney in an owner financing transaction.
—Greg Ebersole, American Log Mortgage