What is owner financing? This is a type of sale where the owner provides financing to their buyer very much as a bank does. The owner will usually have similar terms as a bank for a buyer to qualify. The seller may require a downpayment, interest on the loan, and can also foreclose for non-payment. This is also a great way for a buyer to buy a home that may not have the best financial background on paper since the owners might be a little less stringent. Check out these 4 tips for selling your house with owner financing in Nashville. Owner financing is a great way to use the principle of the law of compound interest.
Tip #1: Check Buyer Qualifications
You will not have to wait long for an offer if you are willing to provide owner financing; however, you do have to take into consideration WHY they aren’t using a traditional bank to obtain the financing. Did you know 64% of home buyers cannot qualify for a loan? Most of these unqualifiable buyers are ones who have interrupted work histories or low credit scores.
You must conduct all due diligence on your potential buyers to protect yourself and your investment. Make sure you require your potential buyer to fill out a loan application and investigate all the information provided, such as current employment and references. Also, conduct a background check and run a credit report. Do everything a traditional bank would do.
Tip #2: Make it Legal
When you find your buyer, make sure you draw up a legal contract with all your agreed-upon terms. Make sure you include loan term, down payment, interest rate, payment schedule and what happens if they default. You will also need a promissory note to be recorded in the county records of the property. This is how you prove that you are the mortgagee and you can foreclose if they default. It is extremely important that all of the words and phrases are legal, and that you do not forget an important part of the contract. A small mistake, in the beginning, might cost you a lot in the long run.
Additionally, you are required by loan to provide the mortgagor (buyer) with an amortization schedule outlining payment schedule,
principle payoff, interest, interest rate and the number of months for the loan.
Tip #3: Owner Perks
The whole owner financing process seems to be in favor of the buyer, who may not be able to obtain traditional financing through a regular bank, so why would an owner support this option? You will collect interest on the loan! Often times, you will make more money off the property selling it through owner financing than if you took the lump sum purchase price. One way of looking at owner financing is by asking yourself the question, who owns the largest buildings in any city or town in the US? Yes, the banks!
You may be able to collect even more interest if you allow for a longer loan period. Also, if you change your mind after a while and do not want to continue to hold the loan, there are investors standing by ready to buy your note. Keep in mind, this will fully depend on the creditworthiness of the buyer and whether they have been making on-time payments or not.
Tip #4: Collect like a Pro
A very important part of financing your own sale is the bookkeeping or “servicing” of your own loan. You need to keep track of all of the payments and when they were made, the real estate tax, insurance, any homeowners association fees, and anything else to do with the note. Hiring a 3rd party to take care of the loan servicing will save you a lot of time and possible errors in the future. You may also be able to accept multiple forms of payment this way to make it easier for your buyer to make the payments on time with a less likely chance of default. Having a professional note servicer will take a lot of liabilities off your hands and provide you with more free time to focus on what you enjoy.
Real Estate Investors and Owner Financing in Nashville
Maybe the largest market for owner financing in Nashville is real estate investors. Investors use owner financing two different ways. One, they love buying property particularly multi-family property with owner financing. Not a lot of investors can lay down 20%-25% for a commercial loan down payment on an $800,000 or $3,000,000 complex. Many investors have several single-family house deals going at once. Owner financing frees up their cash for renovations while adding more property to their inventory.
The second common use of owner financing is for real estate investors writing notes on their properties when selling to buyers as described above. Many investors use this approach to make additional income from the sale of a renovation or a flip. The investor is selling a property and by selling with owner financing, they build a second revenue stream from the interest of the note.
One final note, if you think you want to owner finance and are not sure how well the house will sell? Just list it as an FSBO or For Sale by Owner and advertise owner financing is available. You will have more buyers than imaginable and it will sell faster than you ever thought!
Call Southern Homes Investments Nashville TN at 615-500-4466 or send us a message to discuss these and other tips for selling your house with owner financing in Nashville. We are always looking to buy homes or multi-family property with owner financing. If you have a second home, rental property, or inherited property you no longer need, please give us a call, we would like to speak to you, we buy houses Nashville TN and surrounding areas in Middle Tennessee.
Disclaimer: David Wright is a licensed real estate agent in Tennessee and this article is not a solicitation to list your property.