If you’re thinking about selling your house and you’re wondering what your options are, perhaps you’re exploring something called “seller financing” (also called “owner financing”). Owner financing is a little-known but very effective way to sell your house. And maybe you’re wondering, is owner financing a good idea for the seller in Minneapolis St Paul? That’s a great question and we’ll talk about it in this blog post…
Here’s How Owner Financing Works
In a normal home-selling transaction, the buyer (who doesn’t have ALL of the money for a house) goes to a lender (such as a bank) and they pay a down payment and then make regular monthly mortgage payments until the borrowed amount is paid in full. Most people this goes on for 30 years as they pay down the mortgage.
This is the way most people are familiar with buying and selling a house in Minneapolis St Paul. But there’s another way to sell your house in Minnesota that you might not be aware of, and it involves owner financing. We are going to give you tips for selling your house with owner financing.
With owner financing, everything is similar except this one thing – the seller of the house acts like the bank: the buyer pays a down payment to the seller and then makes regular payments (just like mortgage payments) to the seller until the house is paid in full. Then the ownership of the house transfers to the buyer. Sounds mostly simple, right?
Many Sellers Are Wondering, Is Owner Financing A Good Idea For The Seller In Minneapolis St Paul
Many sellers do find owner financing to be a great idea and a great help to some buyers who can not get traditional loan for a bank. Other sellers doing owner financing like it, because they can get a steady stream of incoming coming in each month for years to come.
- They like that they have a larger group of potential buyers to sell to (including those who might not qualify for traditional bank financing)
- They like that they get monthly cash flow from financing payments for as many years as the loan to amortized to do.
- They like that they still own the house and are protected, should the seller stop paying, they get to keep the down payment and get can the house back to sell to someone else
- They like that there is no property management to take out fees
What’s not to love? You get ongoing cash flow and protection, and you’re still able to sell your house if the future it the current buyers stop making payments. That’s a perfect recipe for success. Whether this is your primary residence in Minneapolis St Paul that you’re looking to sell, or you’re a landlord who is ready to start selling some of your duplexes, triples or apartment buildings. Finding someone who is interested to purchase your house or rental property with owner financing might be a great option for you.
Word of CAUTION in Owner Financing in Minnesota
When you are sitting down the a buyer who would like to purchase the property with owner financing, make sure to consider do they have the ability to make the payments over the length of the loan. Just like a bank you need to do your do diligence, checking to confirm where they work, how much they make at that job, do they make enough to make the payments. As a general rule, we at Minnesota Cash Home Buyers have a matrix that someone should only put upto 35% of there income towards making payments to be considered a good risk.
Owner Financing matrix Example:
$150,000 purchase with $10,000 down payment= $140,000 loan amount
Interest rate at 35% amortization over 30 years = Principle and Interest payment of $751.55
Estimated property tax is $130 and Property Insurance is $100 per month
$751.55 in PI Payment + $130 Taxes + $100 Insurance which is 35% of $2804.42
If someone does not make at least $2804.42 a month in take home pay, do not sell your house to them on owner financing
If you’d prefer to spread out payments so you have income as the years go by. Or you may want to have more buyers trying to buy your house then you may get with traditional financing, owner financing might be a great option for you. If you’re serious about selling your house with owner financing in Minneapolis St Paul and want to explore all of your options, take a closer look at all the ways to sell you home.