Owner financing or land contacts were very popular when interest rates were in double digit percentages. Today with an increase in home inventory due to foreclosures and traditional financing becoming tougher to obtain, there is a very good possibility owner financing will become mainstream once again.
If you're like most home sellers you're saying to yourself, "I can't sell with owner financing, I still owe on my mortgage plus I don't want to receive payments for the next 15-30 years".
I'm here to tell you that it's possible to sell with owner financing and receive all cash without having to collect payments!
As an illustration, let's assume the following:
Fair market value of the home is $200,000.00 - You owe on your mortgage - $150,000.00
You're going to sell your home for $200,000 using owner financing. You find a buyer that has a 10% or $20,000 down payment. Your buyer now has an $180,000 first mortgage with you ($200,000 - $20,000 = $180,000). Typically, you would collect payments and interest on the $180,000 over a period of several years. However, you need the money to pay off our first mortgage and you don't want the headache of collecting payments.. So, what to do? You decide to sell the $180,000 first mortgage to an investor for 80% of the value or $144,000.00 ($180K * 80% = $144K). The investor is now responsible to collect the payments from the buyer.
You receive $144,000 from the investor plus the $20,000 down payment from the buyer or $166,000 total for the sale of your home. From your $166,000 you pay off your $150,000 mortgage that you owe, netting you $16,000.
It's obvious that for simplicity, I left out closing cost, taxes and Realtor fees, etc. But you can see that it is very possible to sell with owner financing and receive all cash and not have to collect payments for the next 15-30 years. The entire transaction; including selling the $180,000 mortgage to the investor, can be done all at once at the same closing.
Will owner finance transactions once again become main stream? Who knows? If it does will you be prepared or know who to call?
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
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