Owner Finance Terms

Homes offered for sale by owners may benefit from owner financing.
Homes offered for sale by owners may benefit from owner financing. (Image: for sale by owner image by Bruce Shippee from <a href='http://www.fotolia.com'>Fotolia.com</a>)

Purchasing a home that is offered with owner financing provides benefits for the buyer and seller. Owner financing allows a buyer with less than perfect credit to purchase property under agreed terms and the seller has a steady income that offers tax benefits. Owner finance terms define the promise made by the buyer to purchase the property, how he must maintain the property and the action to be taken by the owner if the buyer fails to meet the obligations.

Down Payment

Down payment terms are expressed as a dollar amount paid by the buyer. For example, the terms in an owner finance contract may state that “the buyer agrees to pay $5,000 down for said property to be taken off the total balance due before interest is figured.” The down payment is an amount agreed upon by the buyer and seller and may be a percentage of the total price or a set dollar figure.

Payment Terms

A term specified in an owner finance contract is the payment amount. The payment amount is based on the price of the property, how long the loan is amortized and the interest rate the owner charges. Payments are figured after the down payment is subtracted from the price of the property. Generally when an owner finances the property, the interest rate is higher than with a mortgage loan.


The default clause in an owner finance contract describes the outcome if the buyer fails to meet any terms of the contract. Generally, the property reverts back to the seller and the buyer loses any money paid, including interest, and investments or additions made to the property. The default terms state how long the buyer has to vacate the property after the seller provides notice of default and that he is responsible for attorney and court fees as well.

Occupancy and Maintenance

The occupancy terms provide the details on how many people are allowed to occupy the property. This portion of the owner finance contract states how the property should be used, such as a personal residence. Also, it provides information on whether sub-leasing is permitted or not.

Maintenance terms describe the obligations of the buyer to keep the home properly maintained. This may include plumbing, electrical and other general upkeep. Lawn maintenance is generally included in the terms of the owner finance contract to specify how the buyer should maintain the property.

Transfer of Title

The owner finance terms that sate the buyer becomes the owner with a transfer of title after all obligations are met is provided in the contract. A transfer of title, generally a warranty deed or a quitclaim deed, is the legal document that changes the ownership after the property is paid off.

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