What is Owner Financing?                                                           << Back

You've seen the real estate ads in the classifieds section of the newspaper: "Owner Financing Available" or "Owner Will Carry".  An owner financed real estate transaction enables the buyer of the property to make payments directly to the seller.

This allows the buyer to purchase the real estate without having to apply for a mortgage from a bank or financial institution. The seller also has the option of selling the loan to an investor for cash.

Of course, there are lots of variables that work into a price offer including type of property, location, age of house, equity, is the buyer making the monthly payments, etc. These are just some of the things an investor likes to see. Investors buy all sorts of real estate notes and deeds of trust. Every house is different, every loan is different and every deal is different. Use the above list to make the loan more attractive to an investor.

ADVANTAGES OF OWNER FINANCING THE SALE

Sell Your Property For Your Desired Asking Price  

A buyer may be perfectly happy to pay market value (and maybe more) for a house that requires a smaller down payment and that a bank won't help them finance. 

Charge a Higher Interest Rate Than a Bank Would Give

By charging a higher interest rate than a bank (say 7.5 - 8.5%) you are, in effect, increasing the overall sales price of the property, and making the note more attractive for an investor.

There are ways of preventing the Due-on-Sale Clause from activating such as setting up a land trust. A competent real estate attorney would be about to help you set one up. More than likely, as long as the bank continues to receive their monthly payments from you, there would be no reason for them to go to the trouble of demanding payment. Especially in this economy.

You can also do a simultaneous closing, where a few days after the close of the house with the buyer you receive a check for the note from an investor. If you're going to owner finance your home and you know you want to sell the note this is a great way of doing it because the investor is there for the whole process and you don't have to start over again 6 months later with another appraisal, inspection, credit check, etc.

REAL ESTATE PROFESSIONALS - Providing owner financing could mean the difference in having your client sell their house quickly or having it sit on the market for months, years or not selling it at all.

Asking a seller to offer owner financing to buy their home can be a tricky proposition. Sellers often reject the suggestion of owner financing because nobody has explained the benefits or proposed owner financing as a way to sell the home. Most sellers' knowledge is limited to traditional bank mortgages.

BIG TIP OF THE DAY:

If you're going to draw up a contract to owner finance the sale of your house have an experienced real estate attorney look it over. It might cost you $400 or $500 (maybe more, maybe less depending on what state you are in) but it might save you a lot of heart ache in the end if the buyer stops making payments, they make unauthorized modifications to the house, which might still be in your name, or there is some other unforeseen event (you know there will be).