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When seller equals lender

Lawton_The economic rollercoaster and credit crunch are doing little to help the battered national housing market since consumers cannot always get the cash they need to buy property.  But, what if the seller could help? 

A growing number of sellers are taking matters into their own hands - financing homebuyers homes instead of going through banks.  Karen Staake is desperate to sell her home, and her finances are more than a little tight after a rough couple of years.  So, she decided to get creative and finance the sale of her home on her own.  "If people cannot get loans from the lenders, they're going to need to get it from the owners," she said.

"Owner Financing" or "Owner will carry" real estate experts say Staake's strategy was popular more than 20 years ago, and is making a comeback in today's market.  "It makes them stand out above all the other listings because it is much easier for that buyer to get into that house now," said Brokerage Manager Jonathan Nicholas. 

The seller and buyer agree to the terms, including the amount and length of the loan, along with the interest rate.  Staake is looking for a buyer to make a 15% down payment, and is offering an 8-8.5% rate.  However, she says she is willing to be flexible.  "There are real, actually numerous different ways that a sale could be put together."

But, is seller financing really an option for most people?

Housing lender Patti Lamle says it may not be.  "It's not good if somebody's needing to get their money initially and immediately.  They need that money to go buy another home," she said.  However, it could work for those with a clear title or years of equity in a property, and may even look like a good investment compared to the current stock market and mutual funds.  "They're looking for ways that they can make some extra money, and have some steady appreciation, and make some good interest on it," said Realtor Barry Ezerski.  "Right now, six, seven, or eight-percent looks pretty good to a lot of people when their investments are losing money."

Lawton's housing market is also a factor to consider.  The majority - 55-60% - of sales here are financed through the Veteran's Administration, which saves buyers from having to make a large down payment.  "For them to turn around and try to do this is nearly impossible, because they don't have any equity, and there's not enough money there for them to pay off their note and then be able to turn around and to it for somebody else," said Ezerski.

In some cases, the seller may agree to finance part of the loan to save the buyer from paying a down payment and closing costs out of pocket.  But, buyer beware.  "There were a lot of shortcuts taken in the past, therefore, they were considered illegal transactions," said Ezerski.  "So, a lot of those seller-carry finances of the 80/20's so people could have 100-percent financing - those are gone."  While Staake is aware of the risks, she says she thinks it may be a good thing.  "I do believe we can get real estate and the economy moving again with owner financing."

Consumer advocates say that sellers should do their homework and check out a buyer's credit reports before signing a deal.  They may also want to consider having buyers sign a "Quit Claim Deed."  If buyers don't make payments within an agreed-upon time, the deed is then released back to the seller so the seller can regain ownership of the property.  Many local lenders and realtors say the national banking crisis has not had much of a negative impact on local lenders, and they are still making home loans for a lot of people.

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