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Is owner financing a good idea? |
If you are selling a house in which you have significant equity and you don’t need all of that equity to buy a new home, providing some of the financing yourself may benefit both you and your buyers.Seller-financing arrangements usually involve the buyers securing the majority of their funding from a mortgage company and getting a much smaller second mortgage from the sellers.
Second mortgage interest rates are significantly higher than those offered on 5 year CDs or treasury notes. However, you must understand your risks as a second mortgage holder. Verify the buyer’s income, credit history and job stability, and obtain good financial and legal advice before you make a decision. In some situations it may be better to step back and let the commercial finance industry take those risks. Don’t forget to ask your Realtor and tax advisors about using seller financing to defer your Capital Gains. That’s one of the strongest arguments for considering it! |
