Owner Financing Provides A Way To Get Your Home Sold!
September 21st, 2008 categories: Featured Greater Phoenix Real Estate, Seller Financing
With housing inventories at an all time high and banks tightening the guidelines for obtaining a mortgage, agents must think “out of the box” to help their clients sell their homes. Owner financing, a.k.a. seller financing is one such technique as it will open the pool of buyers who could purchase your home.
With institutional financing being a challenge to obtain, buyers are searching for creative ways to get into homes. Many of these buyers have a down payment and have good income, but they have a credit flaw from the past or perhaps they are self-employed and have a problem proving their income. As a seller, if you can provide the vehicle for them to purchase, your home will stand out from the others.
I am not suggesting that a seller would allow any buyer to buy their home on terms. A credit report is highly recommended and an application stating income, employment, etc. would also be advised. This process would be similar to how a bank reviews a mortgage application. The difference is that you may be more willing to carry the note than the bank who may be trying to sell it on the secondary market and must meet strict guidelines. Your risk is off set by the down payment. The riskier the applicant, the higher the down payment usually.
At this point you may be thinking, “This is all fine and good, but I have a mortgage and no equity in the property, how am I going to do this”? Well, you can. Especially if you have a good interest rate on your existing mortgage as many do since rates were very low in recent years. An instrument called the Illinois Land Trust offers many forms of protection on owner financing deals, but most notably it protects a lender from executing their due on sale clause if title transfers. (I will go into more detail on the Illinois Land Trust in future posts. ) So by eliminating the risk of the due on sale clause, a seller can effectively allow a new buyer to take advantage of the financing they already have in place. If the existing mortgage is 6%, a seller can offer the new buyer (who does not usually have perfect credit) a rate of 7% and even cash flow a little. A seller can usually justify their price as they are offering creative terms that the buyer needs. The length of terms is negotiable as well. A longer term will allow for the property to appreciate a little thereby eliciting the seller some equity that they maybe did not have.
There is so much to talk about regarding owner financing. In an effort to keep this brief, I am going to be writing several future posts on the topic. If you get anything out of this article, I hope it would be that I can help you as a seller or a buyer if you need seller financing. It is very important to have a knowledgeable agent to put these deals together for you. I have several properties now that offer owner financing, you may go to my Featured page to find some. I have others not listed yet so please Contact me for more information.
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I look forward to hearing from you! – Kim
“Ready to sell you your slice of sunshine…”
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