37+ Sample Owner Agreements

What Is an Owner Agreement?

An owner agreement is a contract between a buyer and a property holder. The homeowner agrees to assist the buyer in purchasing the property financially. The buyer, on his/her part, agrees to pay back the owner on the set schedule. This type of lending is also known as owner financing. For example, a client is interested in buying a lot, and the price of the lot is $500,000. The client is ready to pay a 20% down payment, which is $100,000. The buyer may apply for a mortgage, but only $300,000 was approved. The seller might offer the buyer a loan amount of $100,000 to cover for what is lacking, or he/she might agree to pay for the entire $400,000 at the moment. In this case, the client will have to pay the seller every month with interest.

According to Statista, in 2018, there were about 7.08 million homes sold in the U.S. From that year, the number of sales continued to decline between the years 2006 to 2012. 

Based on a report from the United States Department of Agriculture, The Federal Government owns about 33 percent of the 2.3 billion acres while private individuals own 60 percent. State and public agencies and American Indians own the rest.

In an article published by the Washington Post, it says that The federal government is by far the nation’s biggest landowner, holding 640 million acres in total.


5 Common Types of Owner Financing

Owner financing allows a property seller to sell a home while getting an investment return.  An owner is in a favorable position to sign a finance agreement with the buyer, especially when the property is free from mortgage. Here are the five common types of owner financing.

Land contract. A land contract, which is also known as an installment sales contract, is an arrangement where a vendee pays a vendor his/her debts periodically. A vendor consents to sell his/her property while offering financial aid to the vendee. The vendor gets to keep the legal title while the vendee temporarily gets an equitable title. Note that this type of financing may include an ongoing mortgage balance. Moreover, a land contract sets the price of the land, the down payment amount, the periodic payment, and the obligations of the parties involved. The obligations may answer the questions: who is responsible for maintaining the house, who will pay for taxes and insurance, etc.Lease option. When a renter is given a choice to buy a rented property while renting or after the rental term, he/she is under a lease option arrangement. This agreement prevents an owner from selling the property to other prospective buyers. When the rental period is over, the renter will be given two options, to purchase the property or to forfeit it. Compared to a basic lease-purchase contract, a lease option gives a buyer more options when the lease term ends. Usually, the price of a property will be based on its present market value, which allows a renter to purchase his/her possible future home at the current price. For that reason, an owner may charge the renter an “upfront fee,” which is 1% of the total home price.Junior mortgage. A junior mortgage is a loan that is second to a previous mortgage. Most often, it is considered as a second mortgage, but may also be a third or fourth. At the end of a contract, the original mortgage must be paid first. Also, junior mortgages will only receive payment once the senior or first mortgage has been repaid. Note that a junior mortgage may pose a higher interest rate, and the amount loaned will be lesser than the senior mortgage. In case of default, the first mortgage will receive the entire proceeds of the lot until it is paid off.Wraparound mortgage. A wraparound mortgage, which is also known as an all-inclusive mortgage, a carry-back, an agreement for sale, an overriding mortgage, or a wrap loan, is a junior loan that includes an existing mortgage of a property that hasn’t been paid off. A wrap loan comprises the remaining balance of the first loan and the amount to pay for the new price of a property. Normally, a seller will receive a promissory note from the buyer, which details the payment due. Moreover, a borrower will have to pay more on a wraparound mortgage, and the lender will use the money to pay the original loan. The buyer may own the title immediately, or the seller may retain the title until the loan is complete.Assumable mortgage. In an assumable mortgage, an ongoing mortgage, along with its terms are transferred from a homeowner to a homebuyer. In this way, a buyer won’t have to worry about obtaining a loan since he/she will have to assume the existing mortgage of the seller. In this type of arrangement, the buyer will have to assume the principal and interest rate, the repayment periods, and all the terms written in a mortgage. This can be a great advantage for the buyer, especially if the assumable mortgage has a lower interest rate than the present interest rate.

How to Construct a Standard Owner Agreement

The arrangement of an owner agreement ultimately depends on the buyer and the property owner. Some owners may have different terms than others. Some may be stricter than others, or some may be more flexible. Nevertheless, it is important to know this document. So, here are the steps in creating a standard owner agreement.

Step 1: Specify the Loan Term

The buyer can repay a loan in five, ten, or thirty years. Commonly, a 30-year mortgage or a 10-year mortgage with a balloon fee after the contract is used. An owner can choose between the two. If he/she chooses a 30-year mortgage, the buyer’s monthly payment will be lower, but the total interest rate the owner collects will be higher.

Step 2: Set the Down Payment Amount

A down payment shows the interest of a buyer to purchase a property or home. The payment is deducted from the total price, and the seller will finance the remaining amount. Zero down payment is possible but is not common in the real estate contracts. Usually, sellers demand a 10% to 20% down payment before they close the deal with a buyer.

Step 3: Write Down the Interest Rate

In owner financing, interest rates ultimately depend on the property seller. It may be higher or lower than what conventional lenders offer. Some sellers may charge an interest rate that is higher because they are taking a risk by offering to finance. In this case, interest rates may range from 10% and up. It is important to know that state laws have regulations concerning the maximum interest a lender can charge. Furthermore, there are different ways to repay a debt with interest. It can be a fixed interest rate, an adjustable interest rate, or an interest-only loan. Among the three, fixed-rate is commonly used for easy record keeping. An adjustable-rate may change in time. Therefore, it should be closely monitored to avoid miscalculations and mispayments. Investors often use Interest-only mortgages (e.g., fix and flip loans). Fix, and flip loans are for purchasing and renovating a house before investors market it for gain.

Step 4: Incorporate the Balloon Payment

A balloon fee is a payment usually given after a debt term. The whole process of the loan agreement includes monthly payments for a specific timeline and, in the end, a balloon payment, which is the remaining principal balance. Often, lenders do not want to wait for 30 years to get an investment return. That is why balloon payments come in handy. Moreover, a buyer can pay this enormous amount of money from his/her savings, by selling a property, or through refinancing.


What are the advantages and disadvantages of seller financing?

Seller financing is another term for owner financing. It allows an owner to sell his/her property more quickly by offering financial assistance to a buyer, but it poses a risk if the buyer doesn’t continue with the agreement. For that reason, a seller might demand a higher down payment to cover up for the risk. Down payments may range from 10% to 20% compared to traditional lenders who offer a down payment starting at 3%. On the good side, seller financing offers the owner cash flow monthly. Moreover, buyers also benefit from this type of transaction since the terms and conditions are negotiable.

What is the difference between seller financing and rent to own?

Rent to own is another term for a lease option. In a lease option, a buyer is given an option to buy the rented house at the end of the agreement. The landlord remains to be the legal property owner until a renter decides to buy the property. In seller financing, the deed of the property is immediately transferred to the client when both parties sign the contract. Therefore, the client becomes responsible for repaying the remaining debt.

Will an owner financing contract reflect on my credit history?

There are many requirements a lender must meet for a seller financing contract to reflect on your credit. These requirements may include proof that a lender or seller is doing it as a business and proof of the seller financing contract. If the seller meets the requirements of the bureau, your contract might reflect on your credit score.

Are there closing payments at the end of an owner agreement?

Yes, there may be closing payments such as transfer taxes, title fees, and lawyer fees. However, buyers will still save more with seller financing since owners don’t demand origination fees. Moreover, even if appraisals are not common in owner financing, it is still wise to have one if you are serious about purchasing a property. You can contact or ask help from a real estate agent and inquire about a comparative property analysis to be sure.

What does mortgage mean?

A mortgage is an official paper a buyer signs giving a lender the right to own a property in case the buyer doesn’t pay the loan. Companies and individuals utilize mortgages to purchase real estate properties without having to pay it all at once. For specific periods, a buyer repays his/her debts with interest. Note that mortgages are also referred to as “claims on property” or “liens against the property.”

Using an owner agreement will benefit both the buyer and the seller of a home or property. The buyer on his/her part benefits from this contract because owner financing usually doesn’t require origination fees. Also, interest rates are negotiable. On the other hand, the seller benefits from this agreement because it increases the number of buyers. Moreover, the seller will receive a steady cash flow. Note that there are other types of owner agreements, and you can check them on the templates provided above.