In today’s buyer’s market offering owner financing can open your home to a new area of prospective buyers, especially if you’re selling your home for sale by owner. However, there are 5 simple guidelines you should follow if you’re looking for a successful owner financing transaction.
1. Review Buyer’s Credit Reports
If you have a prospective buyer for your home, you should gain their permission to pull their credit reports before entering into a binding contract. The cost of obtaining a credit report is a small price to pay when compared with the money you could lose and the trouble you could face of having to foreclose on the house if you’re using owner financing.
2. Using a Mortgage Company
Make sure any potential home buyers are qualified to purchase your home. You can request that they be pre-qualified for the purchase price of your home through a mortgage company, even if you are going to enter into an owner financed agreement. Make sure that the home buyers have proper employment and income to afford the taxes, insurance, and payments for your home.
3. Have the Paperwork Professionally Drafted
You can use a title company, real estate attorney, or, if you’ve purchased a bundle package from a realtor designed for sale by owners, most of the time they include the preparation of the paperwork. If they do, you will still want to have any purchase agreement and/or closing papers reviewed by a real estate attorney.
4. Dealing With the Down Payment
If you are going to offer owner financing, you will want to ask for a 10 to 30 percent down payment to protect yourself in the event your buyer stops making payments and you have to foreclose on the house. The larger the down payment the more protection as a seller you have.
5. Interest Rates
You will want to charge an interest rate above the current rate the buyer could obtain if he/she went through a traditional financial lending institution. This will encourage your buyer to refinance and pay you off quicker.
Owner financing is a great way to sell your house in today’s market, regardless if you are a for sale by owner or going through a Realtor. If you opt to offer your home for sale using owner financing, you should take every reasonable attempt as outlined in this article to protect yourself and have a successful transaction.