Sometimes sellers ask, “is owner financing a good idea?” And the short answer is yes, it can be, but you must understand the process. Selling a house with owner financing (also known as seller financing) is not the same as a traditional sale of real estate. In a traditional sale, the seller receives their equity upfront. With owner financing, however, some or all the seller’s equity is stretched out over the term.
Investopedia defines owner financing as “a transaction in which a property’s seller finances the purchase directly with the person or entity buying it, either in whole or in part.”
Below is a detailed description of the advantages and disadvantages of owner financing, so you know what steps to take when selling your home.
Overview of Owner Financing
As previously mentioned, owner financing can be a great way to sell your house if you understand how it works. In the state of Missouri, the most common form of owner financing is called “contract for deed.” Selling on contract for deed means the seller and buyer sign a “warranty deed,” and the buyer also signs a “promissory note” and “deed of trust,” thus, giving the buyer equitable interest in the property and full title when the note to the seller is paid in full.
In other words, the seller sells the property to the buyer, and instead of paying the lender (mortgage company), the buyer pays the seller directly or in an escrow account. The payments made to the seller or escrow account serve as a payment to the lender. It is best for all parties involved to establish a working relationship, so everything is recorded correctly and verifiable. Be sure to close at a reputable title company or attorney’s office that understands the laws, rules, and regulations that govern owner financing in the state of Missouri or Kansas.
Advantages of Owner Financing
- Avoid maintenance, insurance premiums, or management expenses.
- Can sell the house “as-is” without making any repairs or touchups.
- Reap tax breaks and principal pay down over time.
- Retain title to the property until the note is paid in full.
- An easier and faster way to sell.
- Spread capital gains taxes over many years, avoiding larger payments.
- Provable income stream to wash out your debt still owed (if there is a balance) so you can qualify for another loan.
Disadvantages of Owner Financing
- Expensive closing costs.
- If the buyer stops making their payments, you may have to foreclose, which can be costly.
- Must comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
- Possible damages done to the property if the buyer is foreclosed on.
So… “is it worth it?”
Yes, owner financing can be a good idea, but you must qualify your buyer. That is why you need the help of an experienced professional to assist you through this process. We prescreen and qualify our buyers before installing anyone into a new home to avoid any issues in the long run. Feel free to reach out to us if you are in the Kansas City area looking to get a higher price on your home. We pay all the closings costs, handle all repairs, and thoroughly prescreen buyers to install into houses. You don’t have to do anything.
For more information about the services we offer, please contact firstname.lastname@example.org or click on the link below. We look forward to going over all your options with you.
If you’re looking for a REAL, accredited local buyer in Kansas City to buy your house with owner-financing, click the link below.