How to Sell Property Financed by Owner
Selling property and financing the sale presents numerous advantages, but also exposes you to significant risk. The benefits are a wider pool of potential buyers, and the ability to ask more for the property. The transaction will close more quickly and there will not be costs associated with using a bank or other lender.
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Instructions
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Pay off your mortgage. Own the property outright by paying off any existing balance on your mortgage. Most mortgages have acceleration clauses that make the balance due anyway when ownership of the property is transferred. Since your buyers will be paying over time, and is not entirely reliable, you should not make payment of your mortgage dependent on them.
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Get a credit report. Require your prospective buyer to provide a detailed credit report from each of the three major reporting agencies--Equifax, Experian and TransUnion-- or a single merged report. The credit report will inform you as to the buyer's other major outstanding debts, if any, and their credit history.
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Require a substantial down payment. Have your buyers agree to put down about 20 percent of the total purchase price as a down payment. This not only is cash in hand for you, it creates a commitment to the property for the buyer and encourages regular mortgage payments to you.
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Execute a promissory note and quitclaim deed. The buyer's debt to you is reflected in the promissory note, which includes all the terms of payment in your agreement. Consult with an attorney to ensure the note is enforceable in your state. When the payments are complete, you can execute a quitclaim deed to surrender any rights in the property.
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Tips & Warnings
A variation on seller financing is to finance only part of the total purchase price, usually the part of the total cost in excess of what the buyer can obtain through other mortgage lenders.
