Owner Financing Homes
One possible way to sell a home quickly and at a good price is to look at owner financing homes. It is important that any owner financing a home has a clear title to the home without any loans or liens against the house. The home should be in good shape, both inside and out, and the buyer has the right to have an inspection and appraisal conducted to determine the condition of the home.
How the Financing Works
Owner financing homes can be a little tricky, but it is the way about 10% of buyers and sellers do business today.
• The seller extends credit to the buyer for the purchase of a house. Typically the buyer pays a down payment.
• Both parties sign a contract or promissory note which states the terms of the loan.
• A special deed should be recorded with the local public records authority in the county or city where the home is located. It may be wise to have an attorney draw up an official contract for the transaction.
• The buyer usually pays the owner back over time, typically with interest.
Methods of Financing
There are a variety of ways owners may finance homes for sellers.
• An all-inclusive mortgage allows the seller to carry the mortgage for the entire price of the home.
• A land contract allows the buyer and seller to share ownership until the buyer makes the final payment and takes over the deed and ownership of the home.
• With a lease option, the buyer essentially rents the home for a time with buying being the eventual goal.
• An assumable mortgage lets the buyer take over the seller’s remaining payments on the loan.
Tips for Reducing Risk
There is some risk involved for an owner financing homes, but there are precautions that can be taken to minimize risk.
• The seller should check a potential buyer’s credit, assets, employment, references and background information.
• It is best to have a written contract specifying the purchase amount, interest rate and loan terms.
• The loan should be secured by the home itself so that the seller may have the option of foreclosing on the home in the event that the buyer defaults on payment of the loan.
• Requiring a 10% down payment is typically a wise move in order for the seller to reduce the level of risk.
Hiring an Attorney
Although it is an additional cost, hiring an attorney may be an upfront expenditure that may save money long-term.
• Both the buyer and seller may need legal representation during financial negotiations.
• A detailed legal contract will need to be written for the home to be sold to the buyer.
• There will need to be a formal promissory note drawn up and signed by the buyer agreeing to terms of payment.
• The seller may need assistance in meeting all complicated tax requirements on an owner financed home sale.
The current buyer’s market tends to make owner financing deals more attractive. Homes tend to take longer to sell in today’s slow economy, and banks have tightened their lending guidelines for buyers; therefore, an owner financing the sale of a home may be one of the better options in our present day financial environment.