Owner Financing in Philadelphia
What is owner financing? This is a type of sale where the owner finances their buyer or becomes the bank. The owner usually has similar terms to a bank for a buyer to qualify. They expect a down payment and interest over a loan and can foreclose for non-payment. This is also an excellent way for a buyer to buy a home that may not have the best financial background on paper since the owners might be less stringent. Check out these four tips for selling your house with owner financing in Philadelphia.
Tip #1: Check Buyer Qualifications
You will not have to wait long for an offer if you are willing to provide owner financing; however, you must consider WHY they aren’t using a traditional bank to obtain the funding. You must conduct all due diligence on your potential buyers to protect yourself and your investment. Ensure your potential buyer fills out a loan application and investigates all the information, such as current employment and references. Also, conduct a background check and run a credit report. Do everything a traditional bank would do. In the real estate industry, it’s essential to protect yourself and your assets; always qualify a buyer to ensure you are not wasting any time, money, or resources. A proper way to prepare a potential buyer will be to request a proof of funds, the buyer proving they have more than enough capital to purchase the property.
Tip #2: Make it Legal
When you find your buyer, make sure you draw up a legal contract with all your agreed-upon terms. Ensure you include loan term, down payment, interest rate, payment schedule, and what happens if they default. You will also need a promissory note to be recorded in the county records of the property. This is how you prove that you are the mortgagee, and you can foreclose if they default. It is essential that all of the words and phrases are legal and that you do not forget a necessary part of the contract. A small mistake in the beginning might cost you a lot in the long run. In modern-day society, there are so many tricks and schemes out there. Individuals defaulting on a loan or squatting on a property has become very prevalent. Real estate is a cutthroat business with many risks; it’s essential to protect yourself and complete the transaction legally with the documents notarized by a real estate lawyer, licensed realtor, or title company. Like any other aspect of life, you would rather be safe than sorry!
Tip #3: Owner Perks
The whole owner financing process seems to favor the buyer, who may not be able to obtain traditional financing through a regular bank, so why would an owner support this option? You will collect interest on the loan! Often, you will make more money off the property selling it through owner financing than if you took the lump sum purchase price. You may be able to collect even more interest if you allow for a more extended loan period. Also, if you change your mind after a while and do not want to continue holding the loan, investors are standing by, ready to take over your note. Keep in mind that this will entirely depend on the buyer’s creditworthiness and whether they have been making on-time payments or not.
Tip #4: Collect like a Pro
An essential part of financing your sale is your loan’s bookkeeping or “servicing.” You need to keep track of all payments and when they were made, the real estate tax, insurance, homeowners association fees, and anything else to do with the note. Hiring a 3rd party to take care of the loan servicing will save you a lot of time and possible errors in the future. You may also be able to accept multiple forms of payment this way to make it easier for your buyer to make the payments on time with a less likely chance of default. Having a professional note servicer will take a lot of liabilities off your hands and provide you with more free time to focus on what you enjoy.