Owner Financing: Selling a Home Without a Down Payment

I have been asked many questions with regard to selling a home and offering Owner Financing. As previously indicated, I will answer the questions I receive in posts as a way to help other home owners.

Answering John's Question:

Selling a home without a Down Payment

John asks...."I am selling my home and offering Owner Financing, but having trouble finding a good candidate with a good down payment. Should I take a chance and allow a buyer to put no money down?"

My advice to John is that it is never a good idea to sell a home without a down payment. You want the buyer to invest some of their own money into the home. If they have their own money involved they are more likely to take care of the home, keep up with maintenance, pay the bills associated with home ownership.You want the potential buyer to show some commitment to the home.

How many times have you come across a rental property only to see it run down? That renter had no equity in the home, they weren't loosing any of their own money, therefore might not care about the property. What are they loosing? They can walk away and find another place to live....

If you intend on selling this mortgage note down the road, you want the buyer to have some equity in the home from the start. The more equity your buyer has, a contract buyer is more likely to purchase the note.

Example:
A home is selling for $100,000 and the potential buyer can put down $20,000. This buyer is already starting with a 20% equity position. A contract buyer likes to see that.

You might also suggest that a potential buyer secure a personal loan for the down payment. Do they have a credit union or can they borrow against their 401 ? In some cases, you can receive a hardship withdrawal for the down payment towards home purchase and not have to pay the sum withdrawn back. Maybe they can be approved for a lesser amount from the bank or receive a loan from a relative. They then give you the money for the down payment. This option gives you the cash down payment, the buyer has the commitment to the home and a contract buyer will see equity.

Before making any final decisions, please make sure you have a good real estate lawyer to help you. Protect yourself.