In commercial real estate, buyers often select a type of financing offered by a commercial lender. There are a variety of traditional loan options, each with their own pros and cons. If looking for an alternative, however, buyers can consider using owner financing, also known as seller financing, to purchase commercial real estate.
How Does Owner Financing Work?
With a traditional loan, a lender agrees to give a buyer a specified amount of money (based on their income and assets) to secure ownership of a property. The borrower then pays the lender directly according to their loan terms.
Owner financing, on the other hand, allows a seller to finance a property for a prospective buyer. Rather than going through a third party, the buyer and seller agree on an interest rate and payment schedule, and the buyer pays the seller directly.
Pros & Cons of Owner Financing
As a buyer, there are several pros and cons to consider when using owner financing.
Pros
- A buyer is not required to qualify for a specific loan product offered by a commercial lender.
- The buyer and seller can directly negotiate the loan’s interest rate, payment, and length.
- The lack of commercial lender fees reduces the total closing costs.
- Not using a third party for financing allows for a faster closing.
Cons
- Not all sellers will offer owner financing.
- The loan terms can be written in the seller’s favor (higher interest rate, larger monthly payment, etc.) because they are taking on more risk by carrying the loan.
- The seller can dig into the buyer’s finances, including income, debt, and credit.
An experienced real estate professional will help you determine the best type of financing for your situation. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.
We give out $250 gift cards for referrals that become our real estate clients.
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