Do you have a house to sell? Perhaps you’re thinking about selling, and maybe you’re thinking about seller financing for the buyer. But if you have a mortgage on your house, you might be wondering, “Can I do owner financing in Minnesota if i have a mortgage on the property?” We get this question a lot so we decided to answer that question here… Keep reading in this blog post and we’ll answer that question and give you some strategies to move forward…
You have options
Many home owners here in the twin cities and out state Minnesota are wondering what are the options and what do I do to selling my house in Minneapolis St Paul. To start off with, you can list your home with a real estate agent on the MLS, this is most traditional way and most expensive. They can try to sell the home themselves to find a buyer on craigslist, sign out front, or build a website. Or they can sell the house directly to a professional home buyer. And, many homeowners are discovering a simple strategy called “owner financing” or “seller financing” that allows them to sell their home to a buyer and collect regular payments that pay off the house over time. A simple way to look it owner financing is:
- The buyer pays a down payment
- The buyer pays regular monthly payments
- When the agreed-upon price is paid, the title reverts to the buyer
Homeowners who want to sell your houses love it because it’s a great way to sell and a great way to find even more buyers – including those who might not be able to get traditional bank financing. Home buyers love it because it means more choices for them and they don’t have to necessarily impact their credit score to get a house.
If you own your house outright, you can do a seller financing agreement. But what happens if you have a mortgage? Maybe you’re wondering, “Can I do owner financing in Minnesota if I have a mortgage on the property?”
The short answer is: it’s complicated.
Seller financing with a mortgage
In some states, you can create something called a “wraparound mortgage” in which you extend a mortgage to a buyer (usually at a higher rate of interest) while still paying your own mortgage to the bank. However, this is not legal in all states and all situations, and there are additional clauses that you should be aware of.
- Buyer’s Benefits: If the buyer does not have good credit and would not qualify for a traditional mortgage loan, the buyer can use a wraparound mortgage instead. The buyer also does not have to pay any closing cost fees with a wraparound mortgage.
- Seller’s Benefits: During hard times such as a recessions, sellers do not have many buyers who qualify for a traditional mortgage.
Disadvantages to wrap-around mortgages include:
- Defaults: A major risk is that buyers could fail to make payments on the wraparound mortgages and the seller would be unable to pay the original mortgage. This would result in foreclosure of the seller’s home if the seller did not make payments.
- Seller Failure to Make Payments: If the buyer makes payments to the seller on the wraparound mortgage, but the seller does not use the funds to pay the original mortgage payments, the lender can still foreclose on the home since the title remains in the seller’s name.
- Due-on-Sale Risk with owner financing: Mortgages typically have due-on-sale clauses, which gives the lender the right to ask for the entire loan and demand repayment of the loan in full once the home is sold. A wraparound mortgage can fall apart if the lender decides to exercise the due-on-sale provision.
Can I Do Owner Financing if I Have a Mortgage on the Property? – You have choices
If you’re unable to sell with seller financing because of a mortgage that has a due on sale clause, you have other options…
An alternative that might work for you is called rent-to-own, which has some similarities (such as ongoing payment and you own the house) and some differences (there might not be a down-payment and the buyer needs to qualify for a mortgage from a bank at the end of the pre-established rental term). For the renter going into this kind of financing, if they have bad credit, it may give them more time to get their credit up to be able to get a traditional mortgage.
If you are thinking about accepting owner financing but you still have a mortgage on your property, here’s another option for you: Get in touch with us and talk to us about your property. As experts in buying and selling real estate, we are aware of a number of options that you might not know about. We can walk you through those options and help you out ourselves or we can connect you with someone who can help you. If you can’t sell your house in Minneapolis St Paul give us a call.
We at Minnesota Cash Home Buyers are experts in real estate. After three decades of working in this business and with a team of Realtors, General Contractors, and general good family folks who have seen just about anything. We are confident we can help you threw selling your house.