Owner Financing: How To Reduce Your Risk


Offering owner financing for the sale of your home can be a scary proposition, but there are ways to reduce your risk.

Offering owner financing to a potential buyer of your home can provide you with an alternative for moving your property in a slow market. Before entering into any agreement, however, you need to do your research by learning the basics of what owner financing entails and how it might benefit you. Owner financing isn’t without its risks; however, but there are ways to help protect yourself both financially and legally.

Thoroughly review the buyer’s information.


Financial institutions perform a vigorous review of a potential buyer’s financial and personal background and so should you. Verify employment records, financial assets and stability, credit scores, references and other relevant information.

Prepare the purchase contract carefully.

There are several different types of owner-financing loan arrangements. While any of these loans will work, be sure to include a deed-in-lieu-of-foreclosure clause in your contract with the buyer, along with the amount, interest rate and terms of the loan. This clause enables you as the seller to take the property from the buyer if payments aren’t made in a timely manner. In addition, the contract should state that the home sale is contingent upon approval of the buyer’s financial information.

Require a down payment.

Down payments help reduce the risk of default on the loan. The theory is that if a buyer already has money in the property then he or she feels more invested in the property and is less likely to default. And, if the buyer does end up defaulting, then you as the seller already have a nice chunk of change to help cushion any financial distress it may cause you as you work to take back the home from the buyer (thanks to the deed-in-lieu-of-foreclosure clause that you included in your original contract).

Get professional help.


Just because you’re offering owner financing rather than requiring a traditional loan doesn’t mean you’re on your own. There are plenty of knowledgeable professionals and dedicated services you can turn to for assistance.

  • Sites like Bankrate.com can provide you with daily and weekly interest rates to help you determine what interest rate you should charge the buyer. (Just be sure to check regional rates rather than national.)
  • A title company can perform title searches, provide title insurance and help determine how much it will cost to record the mortgage—a cost typically passed on to the buyer in the form of closing costs.
  • A loan servicing company can help you draw up the contracts and administer the mortgage.
  • And an attorney, financial advisor and real estate professional can all provide you with advice, assistance and the appropriate paperwork for your arrangement.

This article contains general information. Individual situations are unique; please, consult your financial advisor or attorney before utilizing any of the information contained in this article.

Source: Realtor.com, MortgageFit.com, Nolo.com, Associated Content, NuWireInvestor.com, Bankrate.com
Search All Articles
Related Articles
How To Save On Closing Costs
HomecashsmMany are shocked when they learn how much they owe to close on their mortgage. But there are ways to save before you sign on th
What are the FHA Loan Requirements?
FhaThe FHA makes it easy to secure a home loan. The FHA Loan Requirements are described in detail in this article.
Homeowners Insurance
HomeinstTips on how to shop for homeowners insurance and save money-also avice on flood insurance
Asbestosdanger2_thAn information guide on asbestos and asbestos abatement. Also discusses vermiculite and how it relates to asbestos.

Most Popular
Car Rental Fees You Can Avoid
RentalcarfeessmRenting a car can be costly, but you can trim your bill by avoiding these extra fees
Affordable health insurance: How to save on your health-care costs
AffordhealthsmHealth-care costs continue to rise, but there are things you can do to help make your health insurance more affordable
The 2009 Mortgage Bailout Executive Summary
DeedthumbHomeowners with mortgages up to $729,750 may qualify for this program.
Selecting a Home Improvement Contractor
Hip_thHow to choose and deal with a contractor when doing home improvements-how to avoid fraud.


Zip Code Profiler

Neighborhoods, Home Values, Schools, City & State Data, Sex Offender Lists, more.

Instant Home Value!