Will You Administer Owner Financing for your FSBO Property?
Posted on February 15, 2008 - Filed Under Wyoming Real Estate
Finding the perfect buyer–one who has cash and is willing to pay the full asking price for your FSBO house is a great dream for the ‘For Sale by Owner’ seller, but one which doesn’t happen very often. As a seller, you may want to consider offering owner financing for the sale of the house, particularly if there is a significant amount of equity build up in the property. Providing seller financing for the buyer’s mortgage loan can result in a significant advantage for the seller and the homebuyer as well.
Offering owner financing on the purchase of your For Sale by Owner’ property provides you with at least two major advantages on the financial aspects of the sale. You will typically gain a higher interest rate for the mortgage loan payments than you have received with funds in a certificate of deposit or a savings account. You are also more likely to get a higher price for the property than you would have otherwise. Unfortunately, you may also have a greater chance of the homebuyer defaulting on the loan.
Sometimes a homebuyer will experience difficulty in obtaining financing to %purchase% the house you have for sale due to problems qualifying for the mortgage loan. They may be unable to obtain credit due to a credit score or have other factors that will cause conventional lenders to refuse to extend credit. Sellers looking for a stable income during their retirement years would be happy to receive an amount equal to the mortgage payment as income each month.
The risk on owner financing is due to the fact that the homebuyer may default on the loan. If the seller takes a second mortgage and the homebuyer defaults, the seller will more than likely receive nothing additional from the sale of the FSBO property. The second mortgage interest rates are generally higher, though, because the risk is greater. Seller financing is generally for either a first or a second mortgage.
If you are planning to make owner financing available to the buyer, you must be certain to collect and maintain all the required documentation about the nuts and bolts of the transaction. You will need to qualify the homebuyer in order to ascertain whether he has a solid credit history and the ability to repay a loan of the size necessary. Forms for the transaction are available online or through your attorney.
The danger that the homebuyer will default on the mortgage loan is the biggest danger faced by the seller. Bankruptcies and foreclosures in the United States are increasing at alarming rates. You should be aware that you may need to go through the complexities of foreclosing on the property if the homebuyer should default. These foreclosures can sometimes be an expensive way to get your property back.
As the seller, you must weigh the advantages of a higher sales price and higher earnings on your investment funds against the risk of losing part or all of the remaining loan proceeds. Even with the risks, seller financing is a lucrative way to invest earnings from the sale of your FSBO property.
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