For some homeowners, the thought of becoming their own bank can be scary.
Most home sellers want the cash and to move on with their lives.
Did you know you could sell your house for more with Owner Financing.
Find out below:
In most cases, buyers usually apply for a mortgage or home loan. In the case of owner financing, the owner or seller lends the buyer money to buy the house. They execute a promissory note or legal document that details interest rate, payment schedule, consequences of default on the loan and other matters. This document or “deed of trust” is usually recorded with the local public records authority.
These types of loans are generally short term, for example with a balloon payment due in 5 years. The theory is that the property will have gained enough value in 5 years or the buyer’s situation would have improved during the specified period of time so that they can refinance with a traditional lender.
This type of financing is a good deal if the property is free and clear of debt. If the property is still under mortgage, the lending party must agree to the transaction.
If you think that owner financing may be an option for you, below is a general guideline on how you can sell your house through owner financing.
The first step is to agree on a price for the property. Generally speaking, it is better to have your home value professionally assessed by a realtor or qualified individual. Price is important to both parties. For sellers it is what they will receive during the sale and for buyers it is the amount they are going to pay over a period of time.
If you are unsure of how to determine a fair price, consider hiring a third party for example an appraiser. An appraisal will usually determine the value of the sold based on similar sold comparable properties within a certain radius of your property.
You could have a situation where more than one buyer could be interested to buy your property. In any case, it is important to vet all buyers through a buyer’s verification process. For this step, review details such as income, assets, references, credit check and employment history. This data will tell you if the buyer has the financial capabilities to pay back their loan.
It is important to remember that since you are loaning money to buy your property, that the buyer should be able to pay you back in a timely manner. A buyer with little to no assets or somebody with dodgy employment history is riskier compared to a buyer with an impeccable list of assets and a solid job history. Also, don’t just take their word for it. Verify employers and check out tax returns in order to verify the data provided to you. You can work with a lawyer to verify the details or do it on your own.
Banks and other lending institutions require home buyers to pay a down payment upfront to cushion or reduce their risks. It also gives the buyer a stake in your property and makes them less likely to run away at the first sign of financial trouble or if they decide to change their mind. A reasonable down payment amount could be at least 5% to 10% of the purchase price.
It is now time to talk about monthly payments to the loan. This is the monthly sum you and the buyer have agreed upon as payment for the loan. Follow the steps here for a sample calculation of monthly payments.
The idea of being your own financing sounds risky. To reduce your risk, you need to know how to protect yourself. You can always hire a real estate agent and lawyer to help you close the deal. Aside from insisting on a buyer verification process and requiring a down payment, you can also consider hiring a loan servicing company to help draw up the mortgage, mail statements to the buyer, collect payments, and administer the mortgage. The loan should also be secured by the property so you as the seller (lender) can foreclose if the buyer defaults.
If owner financing is not for you, then another option to consider is selling to an investor. Gold Path Real Estate can buy your property for CASH and AS-IS so you do not have to make any repairs. They buy in any condition and on your timeline. Call at 612-758-0071 to figure out a solution that is a win-win for both parties.