Owner financing is an alternative method of seller your home, where you the homeowner enters into a mortgage contract with a buyer who wants to purchase your home. Owner financing usually yields full market price for the home and a good rate of return. Here are 6 ways to insure that your risk is minimized.
1. Ask for a cash down payment of at least 10% on the purchase of the home.
2. Seek additional security. If the buyer has part of the down payment and you feel comfortable that the buyer can pay the payments, as for additional security such as a car title that can be released after a short period of time, for example 2 or 3 years, if payments are made as agreed.
3. Check the buyers credit. Don’t take the buyers word for it; get a copy of their credit report. Get the buyer to provide you with a copy of their credit report. They can get one on the internet from Equifax or one of the other major national providers.
4. Trust yourself. If something doesn’t feel right about the transaction, it likely isn’t right. You are entering into a long term relationship that shouldn’t be taken likely. You need to be 100% comfortable with the deal before you move forward.
5. Consider the whole picture. If the bank is willing to loan the buyer 90% of the homes value, and is okay with you holding a second mortgage on the house if the buyer puts 5% down in cash, it’s a win win for everyone. The whole picture is you’ll be getting 95% of the value up front, even if the buyer never pays a dime on the second mortgage. Worst case scenario is that you foreclose on the house that the buyer paid you 95% of the value for.
6. Talk to a lawyer. Find out exactly what the foreclosure laws are in your area. By finding out the worst case scenario up front, you can determine how you should proceed.
Offering seller financing makes it easier to sell, and to get a higher price. Just be safe about it. Have a real estate lawyer review your paperwork, and use the tips here.
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