When it comes to property sale, owner financing is perhaps the most viable sellers and buyers in the Hoosier State explore the least. Also called seller financing, it is a natural solution to the lack of housing affordability these days. It comes in different arrangements, but it is perfect for borrowers who can’t qualify for a mortgage the traditional way regardless of how it is structured.
Generally, sellers who want to close fast and get paid in full turn to Fort Wayne, Bloomington, South Bend, or Indianapolis cash homebuyers. However, those who are not as desperate and are more financially flexible might find it worth the trouble.
Seller financing alleviates the pressure of home improvement, for the buyers attracted to this option are usually willing to purchase a property in “as is” condition. As a seller, you can charge an above-the-market interest rate to make up for the significant risk you will take, promising a higher rate of return than other investment vehicles. If you want to receive a lump-sum payment, you have the luxury to sell the promissory note to a real estate investor.
But then again, there is a reason why seller financing is not a popular alternative to the traditional mortgage process. For most sellers, the inherent dangers of the deal are too much of a gamble. Here are some of them:
The Buyer Could Miss Payments
The most disadvantageous part of financing a buyer’s purchase of your house is delinquency. If you opt for an all-inclusive mortgage, you will be held responsible for its monthly payments. You, not the buyer, answer to the lender.
If you decide to provide a “junior” mortgage, a small second home loan meant to supplement the funds of the principal credit, you might be considered as a lower repayment priority by the buyer. Regardless of what the agreement says, financial distress might force the buyer to put that payment intended for you on the back burner.
If you choose the “lease option” route, you might still not receive a payment punctually all the time. The beauty of this arrangement, though, is that you do not have to worry about any debt since no mortgage is involved whatsoever.
The Buyer Could Thrash Your Property, Stop Repayment, and Leave
Some buyers who can no longer manage repayment decide to walk away but not without leaving the house is worse state than when it was turned it over. As the owner, you will need to shoulder the cost of repairs unless you want to sell the property again in “as is” condition.
The Delinquent Buyer Might Refuse to Walk Away
The worst-case scenario is when a buyer defaults on the financial obligation and still likes to stay. If you find yourself in this annoying situation, you will have to execute the foreclosure process to recover or minimize your loss. It can be time-consuming and costly, so you ought to vet your prospective buyer thoroughly to avoid such an experience.
Seller financing is not for everyone, but it is always worth the consideration. If you do not want to expose yourself to the said dangers and like to get your house sold in no time, you might be better off dealing with an all-cash buyer.
