The housing market can be pretty competitive as well as expensive for both a seller and a buyer. Though most real estate transactions are handled by real estate agents and the money for the sale is loaned to the buyer by a financial institution, there are plenty of cases where the owner finances the sale.
Whether that’s right or wrong for you will depend on your circumstances. When you do owner financing, you’re acting in place of the lending institution. You’ll get a promissory note from the buyer and, like the bank, you reserve the right to take back your home if the buyer doesn’t pay as promised.
You can offer a variety of loans from an assumable mortgage to a lease option or a junior mortgage. You have to have a contract that spells out all the details of the promissory note.
The promissory note should have the date when payments are due, the amount of the payment and the interest rate. How you set up that note for payment on your home depends on what you and the buyer agree on. Some of these notes are for a shorter time span than others. Some sellers think that if a buyer is seeking owner financing, it means he can’t get bank approval because he can’t afford it. But that’s not always the case. Sometimes you can have investors who want to buy another property but the bank is too leery about their debt ratio. It doesn’t mean the potential buyer is a risk.
There are both pros and cons to offering owner financing. By doing so, you can eliminate expensive closing costs. You can also often find a buyer faster. When you list your home for sale yourself and you have a buyer who needs financing and can’t or doesn’t want it from a financial institution, then you can often get a better price on your home.
Another benefit for offering financing is if you want to move yourself or you have to relocate and you need the money that the buyer has to pay as the down payment.
If you want to get out from under a mortgage payment, offering owner financing can often make a sale happen faster. This is because part of the hold up in a conventional sale can be when the potential buyer has to try to secure financing. Sometimes people have been through a hard time and they’ve recovered financially, but their credit rating hasn’t – so traditional lenders won’t touch them even though they can afford to buy the home.
Other benefits to financing it yourself include receiving the payment every month. There are some drawbacks, however, that you need to know. If the buyer doesn’t pay, then you have to foreclose on the home.
Sometimes people walk away from a property and then you have to reassume the mortgage costs as well as fix up any possible damage that was done by the owners.