Buyer comes along and is very interested in buying your home. As a matter of fact he is so interested he’s willing to pay 325,000 – 25,000 over market (he realizes he doesn’t qualify conventionally and thinks overpaying and owning is better than renting). Because buyer has a short-sale on their record, or is self-employed and doesn’t show all his income, or perhaps the bank doesn’t like the buyer’s new frohawk hair-do, they refuse to loan them the money required to close. After meeting and speaking with the buyer face to face and reviewing some documentation you feel buyer is a perfectly viable candidate. Both buyer and seller understand risks and benefits of owner-financing and decide to transact. You will require a 35,000 down payment, and finance the rest for 6%.
Let’s say the bank is charging 4.5% interest on the amount you still owe them (280k).
Here’s how it would look:
-35,000 Down Payment
290,000 Remains (amount you’re financing back at 6% Interest)
You will now collect cash up front 35,000 (minus closing fees) + the override interest on the amount financed. In this example, you would be earning 6% on 10,000 (the additional amount financed over your loan balance - Remember you owe 280,000 but financed 290,000) Plus the override between the 4.5% you owe to the bank and the 6% you are getting from the buyer.
Learn more about owner-financing online and through the resources available on my website. Call me direct to discuss the different ways to buy and sell with owner-financing.