Ask Our Broker With Peter G. Miller: Take Back?
Question: We expect to sell our home this summer and wonder if we could get a better price with seller financing. What are the pros and cons of owner take-backs?
Answer: There are a number of situations where it’s claimed that owner take-backs create a marketplace advantage.
First, in a market with high interest rates, seller financing at a lower rate will be attractive to buyers. However, at this time, we have mortgage rates not far above historic lows so there’s less leverage from a seller take-back.
Second, if you take back financing, you may be able to get a higher sales price. However, at this time there’s a nationwide inventory shortage. Sales above asking prices are common in many markets.
Third, you may have an eager buyer but someone with poor credit who wants to purchase the property is an inherently bad idea. Essentially you’re being asked to finance a buyer who commercial lenders won’t touch.
Fourth, someone has attended a get rich-quick seminar. They’re looking to buy property with other people’s money. In this case that means your money. No doubt they would like you to be “flexible” when it comes to the sale price and to use their special form agreement.
Fifth, if you provide owner financing you may be able to get a faster sale. In this market – because of the inventory shortage – such an inducement is likely to be unnecessary. Look around and see if there are a lot of “coming soon” signs in your neighborhood, effectively homes available for purchase before being entered into local MLS systems.
If you take back financing, you’re in the banking business. When you take back a mortgage you can be labeled a “loan originator” and therefore subject to a massive number of regulations. The good news is that under Dodd-Frank, there is a one-mortgage exception for home sellers who take back a mortgage. The bad news is that to qualify for the one-mortgage exception there are a number of complex requirements.
The alternative to an owner take-back is a transaction financed by a licensed lender. The lender will qualify the borrower, worry about missed payments, know all about the rules and – most importantly – hand you a check at closing. The transaction will be done and over. If the borrower is late making payments or is foreclosed it’s not your problem. You can use your cash to buy a replacement property or for whatever purpose you want, without worrying if the buyer will send in this month’s check.
Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to firstname.lastname@example.org.
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