4 Tips For Selling Your House With Owner Financing

Selling Your House with Seller Financing

Owner Financing or Seller Financing Defined

Owner or Seller Financing is a type of sale where the owner finances the buyer of the house. In essence, they become the bank.

The owner will usually have similar terms to a bank for a buyer to qualify. They will expect a downpayment, to amortize a loan, to charge interest, and a mortgage or deed of trust securing their interest and defining how to foreclose for non-payment. This is also a great way for a seller to help a buyer who may not have the best financial background on paper. Where we see seller financing happening the most is when the seller is selling a property that is either priced below what traditional lenders have as a minimum loan, for example, properties under $50,000. Or on properties that traditional lenders will not lend on, usually homes needing major repairs or mobile homes. Then we see it used on the other side of the spectrum is when the home is over an amount that lenders will lend on or when the seller is asking more than what a bank would lend money on.

Other times we see seller financing when the seller has issues that might keep them from selling a home. For example if they sell and take a lump sum, they might end up with a huge tax burden. By selling a house on terms as seller financing is sometimes called, the seller gets payments over times and can save taxes. There might be other situations where senior care issues will prohibit a cash sale, but selling with payment over time will solve the problem

No matter what your reason for needing to sell with Seller Financing, we have 4 tips to offer.

Four Tips for Selling a House with Owner Financing

Tip #1: Check Buyer Qualifications

You will not have to wait long for an offer if you are willing to provide owner financing; however, you do have to take into consideration WHY they aren’t using a traditional bank to obtain the financing. You must conduct all due diligence on your potential buyers to protect yourself and your investment.

We have purchased a few properties here at kcmoHomeBuyer with Seller Financing. We have also sold several with seller financing. To protect our own interests we have a simple loan application, the banks use a form called a 1003 form from Fannie Mae and you can easily find this form on the internet with a quick search. Next you should do some sort of screening to make sure they are good people, will not destroy the property you are selling and that they pay their bills. We have a tenant screening service called RentPerfect that can do a background check and obtain credit to help you in this situation. Last, make sure you require a downpayment, we like to get at least 10% and prefer 20% or more as a down payment.

When you find your buyer, make sure you draw up a legal sale contract with all your agreed-upon terms. Make sure you include loan term number of months, down payment, interest rate, payment schedule, and what happens if they default. Next you will also need a promissory note to define all these terms. Then you will need a mortgage in Kansas or a Deed of Trust in Missouri to record in the county records to secure your interest. This recorded documents lets the world know you have a lien on the property as the lender and gives you the ability to foreclose should the terms of the promissory note not be met.

Tip #3: Owner Perks

The whole owner financing process seems to be in favor of the buyer, who may not be able to obtain traditional financing through a regular bank, so why would an owner support this option? You will collect interest on the loan! Often times, you will make more money off the property selling it through owner financing than if you took the lump sum purchase price. You may be able to collect even more interest if you allow for a longer loan period. Also, if you change your mind after a while and do not want to continue to hold the loan, there are investors standing by ready to take over your note. Keep in mind, this will fully depend on the creditworthiness of the buyer and whether they have been making on-time payments or not. And if you have it all set up and documented correctly.

Tip #4: Collect like a Pro

A very important part of financing your own sale is the bookkeeping or “servicing” of your own loan. You need to keep track of all of the payments and when they were made, the real estate tax, insurance, any homeowners association fees, and anything else to do with the note. Hiring a 3rd party to take care of the loan servicing will save you a lot of time and possible errors in the future. You may also be able to accept multiple forms of payment this way to make it easier for your buyer to make the payments on time with a less likely chance of default. Having a professional note servicer will take a lot of liabilities off your hands and provide you with more free time to focus on what you enjoy.

Here in our office we use Allied Servicing, they do a great job at a fairly reasonable price. You can find them online at www.allservicing.com.

We buy houses for cash or we can make payments over time if you would like to minimize any taxes you might have. Take a minute to learn more about us and how it all works. Then fill out our form and tell us a bit more about your situation so we can discuss how we can help.

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