Selling a house can take time. However, if you offer owner financing, you may be able to find a buyer faster, since you will attract a larger market. Seller financing has you as the loan holder on the property. If you own the property outright, then you will be able to keep the entire mortgage payment. If you have a loan on the house, you may be able to offer a second to the buyers. Regardless of the type of loan, you can have a profitable transaction if you understand important details of owner financing.
Check Key Credit Items
After you have checked the buyers' income, review their credit history and score. Analyzing the buyers' payment history will protect you in the long run. Have the buyers order their reports for free from the three major credit bureaus at AnnualCreditReport.com: Exquifax, TransUnion and Experian. Ask the buyers to purchase their credit scores that's offered at the end of the transaction.
Once you have the report, look for a pattern of delinquencies in paying everyday bills. If you find a foreclosure or bankruptcy that is less than two to three years old, ask the buyers how their financial situation has changed since then, but be leery of selling to people with poor credit histories or who did not pay their mortgage on time. Mortgage Buyers Inc. recommends that you not sell to buyers with a credit score of less than 600.
Get a Down Payment
If buyers are not "invested" in the home by giving you a down payment, they may be more willing to stop paying you. Although you eventually will be able to regain the property through foreclosure, the time and expense could be significant, not to mention the repairs that may need to be performed. The U.S. Note Buyer website advises that you collect at least 10 percent of the sales price as a down payment on the property. The buyers will be less willing to forfeit this amount through default.
Detail the Loan Terms
It's important that all required terms are written in a contract. No verbal agreements should be in place. Details in the contract should include the sale price, interest rate, length of the loan with any balloon payments, payment amount and due date, late fees, prepayment penalties, default provisions and the requirement to pay property taxes on time and have a hazard insurance policy in place. The buyers should initial each page, showing that they read it and it was not added at a later date and sign and date the last page of the mortgage contract.
Hire a real estate attorney or title company to help you write the contract and complete the transaction. The buyer may want to be assured that the title to the home is free and clear and may request an appraisal. Once the sale is closed and the loan is in place, consider hiring a real estate loan servicing company, such as Investor Loan Services, to bill the buyer and collect payments.
- Trulia: Owner Financing Tips for Sellers
- Mortgage Buyers Inc.: Seller Financing/Owner Financing -- How to Structure the Best Mortgage Terms - 7 Key Tips
- US Note Buyer: Owner Financing Tips -How To Owner Finance A Home or Other Real Estate
- Note Investor: 5 Owner Financing Tips for Sellers
- REIClub: How To Check Your Buyers Credit
Carol Deeb has been an editor and writer since 1988. Her work has appeared in magazines, newspapers and online publications, as well as a book on education. Deeb is a real-estate investor and business owner with professional experience in human resources. She holds a Bachelor of Arts in English from San Diego State University.