Paying for a house directly to the owner vs. paying through a bank.
Besides taking out a mortgage with a bank and paying installments, there's another method many people may not know about: "buying a house directly from the owner." This involves paying installments to the homeowner, bypassing a bank. What are the details, advantages, and disadvantages of this method, and what should you know before deciding to buy a house directly from the owner?
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What is buying a house directly from the owner?
Buying a house directly from the owner is another form of real estate purchase. Instead of taking out a mortgage and paying interest and principal to a bank, you pay the homeowner directly. This method is used when homebuyers have difficulty accessing or obtaining loans from banks.
However, buying a house directly from the owner is not very popular nowadays because, in most cases, you may lose more than you gain.
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What to do when buying a house directly from the owner?
Once you've decided to buy a house directly from the owner, the first step is to create a clear contract. This contract will provide written confirmation of the agreement in case of future issues, including the monthly payment amount, interest rate, and ownership structure.
If you lack knowledge, consult an expert who can clearly explain the process. This includes the contract terms, delivery arrangements, and contract duration.
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The Difference Between Financing a Home from a Private Owner and Financing from a Bank
There are several differences between financing a home from a bank and financing from a private owner.
Firstly, interest rates. Banks generally set interest rates in various forms depending on the bank's offer, and these are typically decreasing interest rates as the principal decreases. As you make payments, the principal decreases, and the interest you pay decreases accordingly. However, financing from a private owner does not involve any reduction in interest unless agreed upon beforehand.
Furthermore, when financing from a bank, you are guaranteed to receive legal ownership upon completion of the loan term. With a private owner, however, you may have to take a chance on finding a reputable owner, as there have been cases where owners refused to transfer ownership.
In addition, when financing from a bank, you may be able to request payment deferrals during financial crises affecting your income. For example, during the COVID-19 crisis, many banks voluntarily suspended payments as part of government assistance measures. However, not all private owners were willing to do so.
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Conditions for Financing from a Private Owner
Regarding the terms for financing a house directly with the homeowner, ultimately, it depends on the agreement of both parties. There are no fixed conditions. You can determine the terms based on your financial capabilities. For example, if your monthly income is approximately 19,000 baht,
you might be able to afford a monthly payment of 9,000 baht, including both principal and interest. This depends on whether the homeowner can accept this amount. The contract relies more on mutual agreement and finding a middle ground that both parties can agree upon, rather than having rigid terms or a fixed plan. You might use your bank's payment history as a benchmark in your agreement.
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Summary of Advantages and Disadvantages of Financing a House Directly with the Homeowner
The advantages and disadvantages are divided into points for clarity:
Advantages:
1. It seems to be the only advantage: No complicated bank loan application process. No need for a good credit history; even existing debt can be considered, depending on the mutual agreement between the homeowner and the buyer.
Disadvantages:
1. The interest rate is usually fixed (not exceeding 15% per year), unlike bank mortgages which often have fixed or variable interest rates. There may also be limited opportunities to lower the interest rate through refinancing. Or a retention similar to a mortgage with a bank.
2. The homeowner has the right to terminate the contract if there is a default in payments. The money paid so far will automatically become the homeowner's. It's essentially like renting, unlike a mortgage with a bank where the property could be sold to someone else if payments are unsuccessful.
3. Lack of flexibility in repayment. In case of crises that make it impossible to continue payments, such as the COVID-19 crisis, mortgages with banks offered debt relief measures such as principal or interest payment deferrals. A homeowner's mortgage may not offer these.
It's clear that buying a home through a homeowner's mortgage has several caveats that buyers must carefully consider, both in the short and long term. To ensure you own the house upon completion of the loan, a well-written contract is crucial. Alternatively, you can use a loan agreement with the homeowner for the property's price.
The homeowner would then transfer ownership of the house to you first. Then, the house and land would be mortgaged as collateral for the loan. The loan agreement should clearly specify the monthly payments, interest rate (not exceeding 15% per year), and loan term. The choice of method depends on both the buyer and seller.
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Thank you for the valuable information from DD-Property.
