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Traditional financial institutions are designed to lend on houses and are far less familiar with raw land. Because of this some lenders won’t do land loans or may require a very high down payment. This can be devastating for someone trying to purchase their dream piece of property. Owner financing helps fill this gap by offering land buyers a simple lending alternative.

Owner Financing: What is it?

Owner financing is when the owner of the vacant land or property acts as the bank. Since they are the owner of the property there is usually much more flexibility when it comes to loan terms, down payment, purchase price, and monthly payments. Often the length of the loan may be 10, 15, or 20 years instead of 30 years with a traditional bank loan. Usually, there are far fewer requirements to qualify for owner financing. All you may need is the down payment and contract for deed to qualify. Others may want to do a credit check to see if you have good or poor credit. Regardless of your credit score, most seller financing options do not require a credit report. This can make land ownership much easier to obtain.

Traditional Financing may be an option for some

Often when purchasing a piece of land the buyer will use a traditional mortgage or lender to purchase the property. Getting a land loan can be a great option but usually requires 20% to 50% down and will likely have additional closing costs, bank fees, and will take 30 to 45 days to complete the loan process. However, many traditional lenders will not issue a loan for raw land. This leaves many buyers with little to no options making owner financing a great alternative.

Contract for Deed: How does it work?

A contract for deed also sometimes referred to as owner-financed contracts is when the land owner and buyer sign an agreement that the buyer will make payments on the parcel of land while they hold the legal title also known as the deed. Once the loan is paid in full the buyer will receive the deed.

Seller Financing

Seller financing is another word for owner financing. They are used interchangeably.

Prepayment Penalty

Some lenders may charge you a fee for paying off the loan early. Most traditional loans do not include this but it’s worth confirming. You are more likely to see this with seller financing. Be sure to ask if this is included in the contract.

Credit Score: Do I Need Good Credit?

As I mentioned before your credit score will likely be a factor when using an institutional lender but will likely be less of an issue with seller financing. Often times your credit history will not be pulled at all.

Real Estate Agent: Do I Need One?

 Real estate agents can be helpful and are often used but they do receive a commission which can increase the price of the land for sale. If you are able to deal directly with the property owner you can likely negotiate a better purchase price saving yourself hundreds or even thousands of dollars.

Origination Fees

 When using an institutional lender or traditional land loan, the loan officer will often charge origination fees that can vary from a few hundred dollars to several thousand dollars. This is far less common with owner financing, you are more likely to see a flat rate document fee of a few hundred dollars if at all. 

Loan Payments

There are a wide variety of loan repayment options with owner financing. The length of the loan, APR, and monthly loan payment date are all negotiable. Some loans are interest only with a balloon payment after 5 to 10 years others are simple interest and principal payments, it all depends on the type of loan. Be sure to ask.

* Backroad Acres does not do balloon loans

Can I Build on the Property?

Every situation is different so be sure to ask. Some lenders may require that you have the land paid off others may require that only a certain percentage is paid. If you are planning to build a permanent structure be sure to ask if this is Okay. Also, be sure to check with the county to see if a building permit is required. Every town and county has slightly different requirements, so it is best to check with them before you start. However, many rural areas do not require building permits.

How do I get Power?

This can vary widely depending on where your property is located and how close you are to power. If you plan to connect to the power grid be sure to check with the local power company to see how close you are to residential power. Your other option would be to use solar power instead of tieing into the local grid. 

How do I get Water?

Check with the county or local rural water provider to see if they have water near your property. Luckily if there isn’t, there are some great alternatives. The most common alternative is to have a water well drilled. Another option would be to collect rainwater, with the right filters this can be a viable option.

Owner Financed Land: Final Thoughts

Owner financing is a great way to purchase land quickly often times the process can be completed in less than 24 hours. Even if you have low credit or no credit there are likely flexible seller financing options that will work for you. Backroad Acres has many properties for sale with down payments starting at just a few hundred dollars. We don’t charge origination fees, document fees, or use balloon loans. We have a very simple straightforward process that allows anyone to purchase their dream property. 

Check out our land for sale – Owner financed land for sale in Oklahoma and Owner financed land in Kentucky

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