subject: Owner Financing Terms Offered By Desperate Home Sellers Don't Need To Compete With The Banks [print this page] Owner Financing Terms Offered By Desperate Home Sellers Don't Need To Compete With The Banks
As a mortgage note buyer, I see it every day, owner financed mortgage notes with terms like 5% for 30 years, 6% for 30 years, 4.5% for 20 years and 5% interest only notes. I even saw a note last summer for 3% for 50 years! In 50 years many of us may not even be around. So what gives? I guess it's the old saying, "Desperate times call for desperate measures." But it really doesn't have to be that way.
While I fully understand many homeowners' desire to sell their property, they really don't have to give away the farm' to sell their property. Here are some suggestions.
First, just because you're offering owner financing don't neglect those proven selling tactics. These include 1) Pricing the home competitively, 2) Staging the home so prospects see it in the best light and 3) Getting the word out through friends, neighbors and advertising.
Secondly, for the terms you offer or agree to with your buyer, keep these things in mind. 1) You need to pull credit or have the buyers provide a recent credit report. This will help in your negotiations. If their middle credit score is below 600, I would look to the next buyer if you plan on selling the note any time soon to minimize your discount. 2) Most buyers would get a conventional mortgage if they could and therefore expect to pay an above market interest rate so shoot for 7%, 8% or even higher. Odds are, they'll not put up much of a fight. A higher interest rate will also bring you a good bit more money each month and if you ever need to sell the note. 3) While I would try to get a 15-year amortization, 30 years is decent when you go to sell a note as long as you have a balloon payment due in 5 to 7 years.
So in summary, don't neglect proven selling techniques just because you're offering owner financing. And when structuring the terms of the note, keep in mind that the buyers probably have no alternative in financing except for your seller financing. If you've done a good job of pricing and packaging your home and they can afford the payment on a higher interest rate mortgage, they'll probably jump at the offer. This gives you a much higher monthly payment and a much better price for your note if and when it comes time to sell the note.
