What is owner financing? This is a type of sale where the owner finances their own buyer or becomes the bank. The owner will usually have similar terms to a bank for a buyer to qualify. They expect a downpayment, interest over a loan, and can also foreclose for non-payment. This is also a great way for a buyer to buy a home that may not have the best financial background on paper since the owners might be a little less stringent. And where it becomes into play 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. Check out these 4 tips for selling your house with owner financing in Grandview.
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 and we have also sold them. To protect our own interests we have a simple loan application, the banks use a form called a 1003 form 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.
Tip #2: Make it Legal
When you find your buyer, make sure you draw up a legal 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. You will also need a promissory note to define all these terms and then you will need to record in the county records either a mortgage in Kansas or a Deed of Trust in Missouri, this is the document that puts the world on notice that you are 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.
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.