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Is Owner Financing a Good Idea for Home Sellers?

buyers-sellers street signIn this current market, with home prices trending up, but access to financing is more difficult post housing bubble. So, if you want to sell your home, is it a good idea to offer seller financing?

What does seller-financing mean?

An alternative form of financing seen during a seller’s real estate market is owner or seller financing or owner carryback. This means the owner participates in financing the buyer’s purchase of the property, either in whole or in part.

Unlike a traditional bank mortgage where a lump sum is given to the buyer to purchase the home, seller financing means that the seller allows the buyer to make payments directly back to the seller. Most often, the homebuyer signs a promissory note with the seller that outlines the selling price, the interest rate, repayment schedule and even the consequences if the buyer defaults.

In most cases, a seller-financed note is short-term. Since most sellers don’t want to carry a note for 15 to 30 years, the typical note is for around five years with a balloon payment at the end where the buyer secures a standard loan for the remaining balance.

Unless the seller and buyer have an experienced real estate broker assisting him or her in an owner finance, the chances for serious problems arising from the transaction can be significant to both the seller and the buyer.

Is it good for the seller?

Sellers may choose to offer financing for any number of reasons, but some include:

Being able to sell “as is.” If your home requires costly repairs, selling through owner financing may allow you to pass those costs on to the buyer instead.

Potential investment income. Buyers looking for owner financing may be willing to pay a higher interest rate to you than you would receive through any other type of investment. Typically, you must own the home free and clear, and the buyer takes on taxes, insurance and any association dues so all income from the payments goes to the seller.

Opening up the purchase to additional buyers. Potential homeowners that were hit with difficulty during the housing bubble may not be able to get traditional financing even though they are now able to make mortgage payments. Self-employed or contractor may not be able to get favorable loans due to tighter underwriting requirements and may desire purchasing through seller financing.

Some possible pitfalls include what happens if the buyer defaults. If the promissory note is executed correctly, the seller gets the home back along with all of the monies paid to date. At that time the seller is free to sell the home again, but the “buyers” may leave behind damage and the need for costly repairs.

Some things to consider

If you are new to owner financing, make sure to work with a real estate attorney and a professional real estate agent to make sure the sales contract and promissory note fully protect you. There may be tax ramifications to seller financing, so be sure to contact your CPA or tax professional.

The most common problem arising out of an owner finance of a sale to the buyer is when the seller’s loan comes due for payment. Many times the buyer makes a claim that there are problems with the home that were not disclosed by the seller before close of escrow in an attempt to reduce the balance owed on the loan.

Since it is in your interest for your buyer to be able to refinance at the end of the note, offer to report the payments to credit reporting agencies to help build your buyer’s credit score. While individuals typically cannot report directly to these agencies—they have strict lender guidelines—services like Virgin Money can manage and report payments for you to alternative credit reporting companies such as PRBC, that many mainstream lenders now refer to for information on potential mortgagees.

On its face, an owner financing situation seems like a good idea. However, if the transaction is not properly supervised by an experienced real estate brokerfor both the seller and the buyer, many hidden traps may emerge.

If you’re considering selling your home, and wonder about seller financing, talk to us. We can help connect you with professionals to guide you through the process while we market your home.

Tight Inventory Challenges Propel Home Prices

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A fourth national market report has added to the evidence that winter inventories are extraordinarily—even dangerously—low. Realtor.com has joined RE/MAX, NAR and Zillow in reporting levels significantly below last year.

The dramatic drop in listings tracked by REMAX echoed findings by NAR, Realtor.com and Zillow that supplies are tighter than they were last year and even two years ago when lack of supply sparked double digit prices increases and bubbles in several California markets

The

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3 Things You Don’t Want to Hear From Your Realtor

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You’ve decided to sell your house. You begin to interview potential real estate agents to help you through the process. You need someone you trust enough to:

Set the market value on possibly the largest asset your family owns (your home)

Set the time schedule for the successful liquidation of that asset

Set the fee for the services required to liquidate that asset

An agent must be concerned first and foremost about you and

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Chinese Spending Billions on California Real Estate

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Wealthy Chinese with a few million yuan to burn will spend billions on U.S. real estate in the years ahead. The United States is the country of choice for China buyers. Canada and Australia come in next at No. 2 and No. 3 respectively. That rich Chinese individuals and savvy corporations are buying up real estate in world class cities is no surprise at this point.

News of new Chinese real estate deals are popping

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What You Need to Know About Your Listing Agent

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Are you thinking of selling your house? Are you dreading having to deal with strangers walking through the house? Are you concerned about getting the paperwork correct? Hiring a professional real estate agent can take away most of the challenges of selling. A great agent is always worth more than the commission they charge just like a great doctor or great accountant.

Real estate agents are key to buying or selling a home, but

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