With the sluggish real estate market of the last few years, seller financing has been dramatically increasing in popularity, but is it a smart move for you?
If you just can’t bear to let your home go for a fraction of what you paid for it, or you really need to sell quickly, then it may be a great option for you. Offering to carry the contract makes it easier for interested buyers who simply can’t get a home loan in today’s tough lending environment. Owner financing could help you avoid the nasty consequences of a foreclosure or allow you to trade up and take advantage of a great deal on a better home while prices are low, without juggling two mortgage payments.
Offering any form of seller financing can instantly make your home more attractive and stand out in the sea of properties on the market. It can also allow you to set a far higher price than you could get if you sold it to a cash buyer today. Just make sure you are aware of all your options and how badly it could turn out if things go wrong.
How Dangerous is It?
People have been selling their homes like this for decades, and real estate investors have used the process to make millions, so what it there to worry about?
There are three main threats to those who are considering offering some type of creative financing to prospective buyers.
Your Home Just got Demolished.
Until your contract or seller-held mortgage is paid off, any damage to the property could devalue it further, leaving you with a pile of rubble you can never sell. The last thing you want is someone smashing up the place or a hoarder getting your home condemned!
You Just Gave Away Your Home.
Depending on how you put your documents together, and your state laws, you could be giving up “equitable rights” to your property or creating a shared ownership arrangement. If your buyer defaults, this is going to make it even more of a mess to evict him or her. Get ready to take a number and step to the back of the line behind the banks waiting two years to foreclose on their deadbeats.
No, Those Aren’t Pandora Bracelets the Nice Man in Uniform is Bringing You.
No, the sheriff didn’t just get a part-time job as a jewelry delivery guy. If you are underwater on your mortgage, and you can’t keep up on payments, selling and carrying the contract may be difficult. Obviously, you can’t sell the home for less than you owe without your lender’s approval, and if the incoming rent or mortgage payments aren’t enough to cover your home loan, you could find yourself in big trouble. If your new resident gets a foreclosure notice, you can bet they will be contacting an attorney, the local news, and demanding a warrant put out for your arrest for defrauding them out of their money.
If this is you, get a loan modification or ask your lender about a short sale.
How do I Sell My House and Carry the Contract Safely?
Be extremely wary of signing any document that shady guy with the beat up truck and “We Buy Houses for Cash” magnet sign tries to shove in front of you.
There are a number of ways to offer seller financing, including:
● Land contracts
● Trust deeds
● Seller held private first or second mortgages
● Lease options
Each has its own pros and cons. What is right for you really depends on your local laws and current situation. All of these choices essentially allow you to demand a higher price tag than the current market would allow and can provide you income as well as a big cash payday later. However, seriously consider consulting an attorney for help drafting the agreement before signing away the deed to your home.
Tip: You may have an assumable mortgage, which a new buyer can simply take over, relieving you from the debt and accelerating the transaction while making your home far more attractive. VA loans closed before March 1, 1988 are typically assumable (lender approval is required for loans closed after that date), so check your loan paperwork carefully.
Know Someone Who Badly Needs to Sell His Home?
Finally, whether or not this is a good move for you, if you have any friends or family members wondering if they should sell their house and carry the contract, suggest that they take the time to vet any potential buyers carefully before entering into a contract, and of course seek the advice of an attorney.