For those looking to get out of their homes without losing their shirts, most of us can’t remember a time when the housing market has been more depressed. While it’s true that the recent $8,000 tax credit has caused a slight up-tick in the number of home sales, that credit is about to expire. With unemployment at two-decade highs, things don’t look promising. Homeowners are increasingly asking: “How do I get someone to buy my home?” The key strategy for home sellers is to do everything possible to make their property as appealing to the largest pool of buyers. Owner financing makes this possible.
Instead of involving a mortgage broker and a bank, the owner offers to take payments from the buyer directly. This is usually done with a promissory note with the terms of the financing legally outlined. The amount involved can be all or any portion of the sale’s proceeds.
Look at it from the buyer’s point of view. We buy houses using several tools to leverage other people’s money and our own to make the deal happen. Owner financing increases the scope of possible buyers because no credit check is required, opening the door allow for those who are repairing their credit. A mortgage may be involved as a portion of the deal, covering some of the costs for the buyer with the owner carrying financing for the remaining portion. Owner financing can serve as one component in a package of financing options for the deal. This just adds one option that makes everything a little more feasible.
There are, of course, advantages and disadvantages to this way of doing business for those looking to sell house fast. The major perk for carrying financing is the nice big weekly checks that come in to the seller. This can increase the household cash flow substantially and can be channeled into investment real estate or other ventures that, if properly handled, could keep the gravy train coming for years to come clear into retirement years. Imagine how your financial picture might be different if your home buyers sent you checks each month of hundreds or even thousands of dollars for years on end with interest. It can really be an excellent investment given that even the lowest mortgage rates far exceed the interest you’d get in, say, a savings account, CD, or money market account.
Carrying your own financing may also allow you to get out of the home you are trying to sell and allows you to move on with your life. This is because the option will make your home a much more attractive deal to a wider pool of prospective buyers.
Be warned, however, that owner financing carries some significant risks. In some instances it may be advisable to consult with a real estate attorney in drawing up the paperwork. They can help you plan for the worst possible scenarios in dealing with home buyers. This adds to the costs on the seller’s end, but these can be defrayed by having the buyer bear some of those when the deal is drawn up. In any event, doing it on your own is neither smart nor advisable unless the seller has legal expertise in the field of real estate.
Also, sellers looking to relocate and purchase another property don’t have the big pile of cash after their home loan has been serviced. This can leave them in a tougher position when looking to purchase another property. Many sellers are counting on the proceeds of the sale to cover moving costs, and carrying the financing means those funds may not be available in a timely way. Consult with mortgage professionals about the possible impact carrying financing could have on your own purchasing power.
Remember too that while carrying financing can be a good investment, it is not tax-free. Uncle Sam will get a cut of whatever interest you earn. While this is true of any investment, it’s worth considering.
Those looking to sell house fast need become more flexible and aggressive to attract home buyers in Philadelphia or anywhere else. Owner financing is one of the most effective and powerful tools for home sellers to do just that.