Why offer seller financing when you sell? There are a few good reasons, such as being able to offer a higher price, a good return on your money, a faster sale and an easier sale of a “problem property.” So if you need to sell your house fast at market price in as-is condition, then seller financing may be the best solution for you.
Good reasons, but how do you do it safely?
Here are the top 5 tips for success when selling your Austin, Texas, house with seller financing:
1. Ask for a large down payment. If we learned one thing from the real estate bubble it’s this- if a homeowner has no skin in the game, they’re more likely to stop paying their mortgage when times get tough. The best way to counter this problem is to require a decent sized down payment. Keep in mind, the higher the down payment, the longer it will take to sell as you’re limiting the size of your buyer’s pool. But I would recommend collecting at least 5% upfront. If you sell your house for $150k and the seller puts down $7,500, you can bet they’re going to do everything they can to make their payments.
2. Credit checks. Ask them to pay for and bring you a credit report. Bad credit might be okay, but the type of bad credit is important. An unpaid hospital bill they’re disputing is obviously not as relevant as their unpaid loans. If they’re credit score alarms you, require a higher down payment.
3. Talk to a real estate attorney. First, unless you are a real estate attorney, you probably don’t understand real estate contracts. Remember, not all attorneys are the same. You wouldn’t trust your real estate attorney to represent you in a divorce, so don’t use your divorce lawyer to create a real estate contract. The thousand(s) of dollars you pay a real estate attorney to create a solid contract and prepare you for potential pitfalls will pay off dividends if things go wrong down the road. And I can guarantee you that the more real estate you do and the less prepared you are for things to go wrong, the higher the probability is that things will go wrong.
4. Use a third party note collection company. I strongly recommend having an independent, third party note company collect and distribute all monies. It’s a small monthly fee (and I’d include it in the mortgage rate you’re extending to the buyer) that offers benefits for both you and the buyer. The company will take care of collections, deal with the banks, assist with tax documents as well has work with you if the buyer defaults. The buyer will have the peace of mind of knowing that their monthly payments are actually making it to the mortgage company.
5. Use the assistance of a real estate professional. Not all Realtors understand seller financing, and those that do may still want a full commission. If you accept a 5% downpayment and the Realtors charges you a 6% fee, well, this isn’t very attractive. Rather than investing time and money into an attorney and doing this yourself, seek the guidance from an experienced real estate investing company that deals with seller financing. They have a buyers list ready, all the necessary contracts and a Title Company familiar with closing these types of transactions. Many times they can set these types of deals up for you without charging you any out of pocket expenses. If this is a one time seller financing transaction, it may just be quicker, simpler and
To summarize, selling a house with owner financing will allow you to sell it quicker and at a higher price. However, as is the case anytime you deal in real estate, you should take the necessary precautions to understand what you’re doing and protect yourself against any potential pitfalls. Seeking the assistance from a professional, experienced real estate company that understands the ins and outs of seller financing is a great way to do this.
For more information about how to sell a house with owner financing, please contact us here.
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