Today, they normally demand upfront payment, so the buyer has to borrow from a bank. These loans are extortionate. The buyer normally pays the bank back about double what he borrowed, over about 30 years.
Instead, the buyer could offer to pay 50% extra on the cost of the house. But he will pay some of it in installments over 30 years. The bank gets nothing, and the buyer and sellers both make huge savings.
It wouldn’t be suitable for every sale, but it would for many. So why don’t people do it? Is there some legal restriction where only the banks are allowed to do this kind of financing?
Assuming the homeowner isn’t wealthy, the current homeowner probably needs the entire payment upfront in order to move to a new house - that would be the case for me anyhow.
I forgot to mention, this arrangement would work even better, once it becomes common. If the seller is also buying a new house, and not paying the full price upfront. Then he also saves 50% of his purchase price. And the monthly payments he gets from his buyer will fund the monthly payments for his own new house.
I don’t know if this would make sense in that case. The seller would need to take a bigger mortgage. You’d need to do a calculation.
But often people are buying cheaper houses than the ones they are selling. So they receiving a huge cash payment, which either sits in a bank or under a mattress, and they then need to invest somehow.
It would make more sense to receive 50% more money, but over a long time. So the investment and getting a return on the investment, which you would normally need to manage yourself, happens automatically. So the end result is the same, but without the financial risk or hassle, and for much higher return.
And the buyer also saves massively. Everyone wins, by removing the middlemen and their fees. The loser is the moneylenders.
Even with a rock solid contract with the house in your name as collateral, there is a substantial risk that the house will lose value because of something the new owners did or didn’t do. For most people a house is far and away the biggest investment they have, so any risk is hard to swallow.
There are ‘rent to own’ operations around. I have only ever seen them as predatory because of some of the standard contract language. It might be possible to adapt that model to something like what you’re talking about that isn’t just trying to screw poor people over.
“Rent to own” equivalent to a normal mortgage - a very expensive mortgage. They just describe it a different way.
But this is a good analogy. The risks for to owner are the same as he would have with a tenant, but his responsibilities and costs much fewer.
There’s no particular legal restriction that I know of, but there are practical ones. It means having a huge financial relationship with a stranger for a very extended period of time. Banks are set up to judge a person’s credit worthiness and then pursue payment if someone reneges on a mortgage, but your average citizen is not. A mortgage with a bank means leaving the risk to the bank (or investors in mortgage backed securities).
You’d have to draw up a contract with penalties and securities, same as any loan. It might help if you have a way to judge the buyer’s trustworthiness, which would be more common in rural areas.
A bank keeps the deeds to the house until you’ve paid it. So you don’t own the house at all until you pay your debt. That could be an option too.