I continue to see the same For Sale signs in my neighborhood. The houses just aren't selling. If you are considering selling or have a home on the market that is not moving, it's time to think about financing the sale yourself. A good friend of mine bought a new home three months ago, and he has watched his old house sit unsold, while he's struggled paying two mortgages. I finally convinced him to get past his fears and finance the sale of his old home.
He's thrilled that he won't have to make two house payments any longer, and he doesn't have to worry about that empty house. Here are a few basic tips I gave him that helped make the transaction a whole lot smoother. Be sure you have a well-written land contract that spells out every detail of the transaction. This is, in essence, your purchase agreement.
Get yourself a title company and have your title agent file the land contract with the county. This makes it all legal. Be sure to get a good down payment. Five percent would be great, but if the buyer can't afford this, be sure to get a few thousand dollars. This will give the buyer a little equity and make the move to a conventional refinance loan much easier. Be sure the terms are very specific.
Just like any mortgage, there should be an interest rate on the loan, a 30-year term, with a balloon payment. This means the payment is spread over 30 years, which makes it easier for the buyer, but you will get all of your money in a specified time, say 2-7 years. It's always a good idea to talk to your buyer about credit worthiness. You are extending credit, with the understanding that the buyer will go to a bank for a conventional loan to pay you off. That bank will want a decent borrower.
So, it will help your buyer and you to educate him a bit on putting himself in better position to get the loan. Make sure he pays you with a check, so the bank can trace payments. Discuss credit cards and other monthly debt and be sure he knows to pay everything on time.
Finally, explain that a couple of months worth of payments in savings (cash reserves) will be required to secure his loan, so he should plan ahead and start putting away each month. Other assets are also acceptable, such as retirement benefits, stocks, and forms of money that are easily accessible. Finally, instruct your buyer to do everything possible to maintain the house and even to improve it, as this will help with increasing the home's value, which will be a vital part of refinancing into a conventional loan.
Author: Mark Barnes
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