There’s a time-honored tradition. Your real estate property sits on the market too long so you agree to reduce the price. Does it work? Sometimes. Other times it’s like a game of real estate chicken with other listings dropping at the same time. There’s another way. We call it the “Sell Property Fast With Owner Financing” strategy. It’s not just a way to stand out from the crowd. It’s also a way to avoid taking less than your property’s worth. Keep reading for more.
Financing Makes The Real Estate World Go Round
Since the 2008 sub-prime mortgage meltdown, it’s been difficult for homebuyers to qualify for a bank loan.
Borrowers who own their own business and can’t verify their income with W2s are frowned upon. So are borrowers without long credit histories or anything but a near-perfect credit score.
The property used as collateral can be a factor too. Real estate valued at less than $75,000 results in small loans that banks would rather not touch. Also, certain property types such as mobile home, mobile home with land, mixed-use, and others that don’t fit a basic profile are generally passed on.
Then down payments come into play. With seller financing, you’ll want to require as much down payment as possible, but you also have the flexibility to accept less than 20% without requiring expensive PMI (private mortgage insurance). This is a huge incentive for buyers and allows them to afford a higher principal and interest payment.
Buyers without financing aren’t buyers at all. With owner financing, you’ll be offering a solution to financing challenges, be able to attract more buyers, can avoid reducing your sales price, and ultimately sell your property faster.
How Does Owner Financing Work?
With owner financing (aka seller financing) you become the bank. You or someone on your behalf will negotiate the terms such as interest rate and payment period, then you’ll receive a down payment, and finally, you’ll accept payments over time.
Your house doesn’t have to be paid off free and clear, but for seller financing to work best, it does help to have lots of equity.
This website offers lots of free content about owner financing. To help we link to some of those articles below.
What’s The “Sell Property Fast With Owner Financing Strategy” And How Do I Implement It?
Your potential buyer who isn’t a candidate for bank financing has a problem, and you’re offering to be the solution. That’s a great position to be in.
The strategy you and your Realtor (if you’re working with one) implement involves letting potential buyers know you’re offering to finance, then attracting the right kind of buyer.
You don’t want to trade a property you no longer want or need for a borrower who doesn’t perform. Therefore, be careful about simply stating “owner will finance,” or you’ll turn up warm bodies, but many of them will assume you mean: “no credit, no down payment, no problem.” Needless to say, there would be a problem. And that problem will become yours after the loan docs are signed.
An example of better language to add to your listing is: “Owner will finance qualified buyer with large down payment.” With this you’re offering something valuable, and you’re stating who’s eligible.
From here, follow the best practices for offering seller financing.
- Require as much down payment as possible. We recommend at least 5%. 10% is better. 20% (or more) is best.
- You’re offering something banks can’t, and taking risk personally. Your interest rate should be higher than what banks offer. Check laws where you live about legal limits, called usury.
- You don’t have to offer a 30-year payback term. In fact, if you’re interested in having the option to sell your loan someday, it’ll be worth more with a shorter term. Balloons are permitted in some instances. You can also get creative with the number of months, and how payments are made.
- Qualify your borrower by requiring a complete application and verifying items like credit and earnings history. Using a licensed mortgage loan originator for this is best. We can provide a recommendation.
- Rely on an attorney, your realtor, your escrow company, and/or your title company to watch out for your interests, create the paperwork, and manage the closing.
Owner financing isn’t new, and in some areas, it’s still quite prevalent. The best part comes from people working directly with people to find a solution. It’s why we’re such fans.
Check out these articles to learn more: