Owner financing is very similar to a land contract.  The primary difference is that in most instances, the deed stays in the property owner’s name until the home is paid in full.  Owner financing can be offered long term or short term with a balloon requiring payment in full at a pre-specified time.  So, if an owner is ok holding the note for two years but not twenty, they can still offer owner financing.  Generally speaking, owner finance contracts require that the buyer purchase the home or they can be sued for performance.

A key advantage for buyers is that there is the potential that they can write of their payment just like they would if they had a regular mortgage.  (Of course, you should always check with your CPA!) Also, properly structured, owner financing qualifies the buyer for the $8,000 homebuyer’s tax credit.  This can even be used as a portion of the down payment if the seller is willing to wait for their money.

Rent to own houses do not offer the same tax benefits.  However, they are popular because the buyer has the option to buy the home at the end of the rental term but is not legally required to do so.  This is attractive to people who are concerned that they may not be able to qualify for a mortgage.  It is also attractive for those that want the flexibility of having the right to purchase the home but who may want to move to a different location at the end of their rental term.

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