The local real estate market may not look bad compared to many harder-hit locations in nation, but if you find yourself waiting a lot longer to find a buyer for your home, then it may be time to offer owner financing assistance. Owner financing can be offered to a potential buyer and help you move your property much faster in a sluggish market. It sounds pretty simple, but in reality it requires a thorough understanding of the risks.
Before you can put the offer on the table for owner financing assistance, it is important to protect yourself both legally and financially. This starts by doing a thorough review of the buyer’s personal background, including their financial assets and employment records, references, credit scores, and other relevant information. There is no reason why you shouldn’t perform as rigorous a review of the potential buyer’s qualifications as any other financial institution would.
Secondly, when offering owner financing assistance, the purchase contract must be very carefully prepared, including the details of the owner-financing loan. Be sure to include a “deed-in-lieu-of-foreclosure” clause in the contract, as well as the amount, interest rate and specific terms of the loan. This way, if the new owner were to default on his or her loan, you would be able to take the property back from the buyer. An agreement should also state that the sale is “contingent upon the approval of the buyer’s financial information”.
As tempting as it may be, do not enter into a situation where the buyer avoids a down payment. By investing a lump sum amount in the property, the buyer is more likely to feel ‘invested” in the property and this lessens the risk of default.
Also, remember you can ask for professional help in executing the contract and closing the sale. You may require the assistance of a title company and a loan servicing company, as well as a real estate attorney to help you with the closing paperwork and financial aspects of the sale.
A Realtor may be your best source of advice and support when you offer owner financing assistance.
Offering an owner financing assistance to a prospective buyer could be the fastest way to sell your home so that you do not have to wait too long. However, there are risks associated with this transaction, so you are expected to make the necessary review of the buyer’s personal background which includes financial background, credit score and others. You should also ensure that the purchase contract is very carefully prepared, including the details of the owner-financing loan. Lastly, the services of a real estate attorney will be very helpful in this case. It is worth the time, money and effort you will spend.
Todd Hawker is a Colorado Springs real estate broker and agent and the owner of Action Team Realty. With nearly 30 years of experience buying and selling homes in the Colorado Springs area.