If you have some real estate you would like to sell, you have a number of options when it comes to the financing. When you still owe a lot on the property, or need all the money from the sale, you should go with some type of conventional loan. However, if you are not in a hurry for the money, you may want to consider renting the property out, offering a lease-purchase deal, giving the buyer a second mortgage, or even financing the loan yourself. Owner-financing can be a good financial deal when done right. Here are just a few reasons to consider it.
When you have already paid off the mortgage on a place, holding the loan for a buyer means that you will have regular income every month. If you still owe a few years on the mortgage, you can still offer financing, just make sure that the monthly payment will be more than what you pay each month. You can also ask for a down payment that will give you enough funds to keep paying your mortgage on the property for six months or so in case the buyer defaults. As soon as you can pay off the loan you will have extra income.
Holding the loan means you not only get the amount of the loan, but any interest too. For example, if you are selling the home for $150,000 and offering to hold the loan for 30 years at a mere 4.5 percent annually, the monthly loan payment will be $760.03. Once you multiply the monthly payment by 360 months, you will find that you are getting $273,610.80. This is almost double the amount you would get if the loan went through a third party lender.
Option to Sell the Loan
If, at any point in the future, you find you need the money from the sale of the real estate, you can sell the loan to a third party lender. While you will not get all the interest money that would be coming in the years to come, you should be able to get the total amount still owed on the principle. In this way, owner-financing is like a savings account, you are not going to lose the money, and can have the full amount when you really need it.
If you are not sure about the risk of someone defaulting on the loan, you could always have the potential buyer rent the home from you for a couple of years before offering to finance it. This way you will have a good idea of how they will pay you. Of course even the most vetted home buyer may end up defaulting if there is a problem with their finances in the future. So, ask for a reasonable down payment, and make sure you put aside some of the monthly payments for your future.
For more information on real estate, talk to a professional