Creative Financing Options for Selling Your House

Home sellers closing a deal with an investor

They say there’s more than one way to skin a cat. And if you’ve been following the PropertyLark Blog, you’ll know there’s more than one way to sell your house. We’ve talked primarily about the pros and cons of a cash home sale compared to the traditional selling process (through a real estate agent) or going For Sale By Owner. Now, let’s talk about some other financing options you may want to consider.

Depending on your financial situation and ownership stake in the house, additional seller financing options may be available and may make the most sense. These may be different ways to sell to a real estate investor (instead of a straight cash sale) or methods you can use to sell to a regular home buyer.

Let’s take a look at some of the most common financing options that a seller may want to consider:

Lease Option

A lease option allows you to rent out your house to a buyer or investor for a specified lease period. They would pay you an agreed-upon monthly rent and then have an option to buy at the end of the lease period. In most cases, this lease period will be six months to a year. Some regular buyers may require a longer lease period while most investors will want a shorter lease term. The advantages of this selling method is that you aren’t selling the property right away. This can bring some tax benefits and some extra income as you figure out your next steps.

Lease options tend to make sense when the property is not your primary residence. Maybe it’s an inherited house or a second home you happen to own as an investment. Or, maybe it was your primary residence but you are planning to move. A lease option allows you to hold onto the house a little longer and it may be a preferred solution for certain buyers and investors who aren’t fully committed to buying the house immediately. They are able to lease it out for awhile and then decide if they want to buy at the end of the lease period.  

Subject-To Financing

Subject-to financing is commonly used in the real estate investment world. It is often a beneficial strategy when the seller is in a state of financial distress. Perhaps you are upside down on your mortgage and/or behind on your mortgage payments. You don’t have time to go through a traditional sale because you need to sell as quickly as possible. However, a cash sale really won’t help you because of how much you still owe on your mortgage.

Subject-to financing is when an investor will take over your property while the mortgage remains in your name. They will essentially be making mortgage payments on your behalf, and they may pay off the loan as they see fit. They own the title deed to the house. Only the mortgage loan is in your name. The benefits of subject-to financing are that you can usually get a better selling price (closer to open market value rather than cash value) and any mortgage payments you are behind on will be made up for by the buyer. It can also potentially help your credit rating as the payments are being made on time.

On the downside, you want to make sure you can trust the investor buying your house with subject-to financing. Because the mortgage is still in your name, your credit is on the line if they default on the mortgage payments. The contract should be iron clad to protect yourself as much as possible.

Owner Financing

When you own the property outright, you will definitely want to consider owner financing. In this situation, you basically become the bank. The buyer/investor will be taking out a loan from you as they make purchase payments (with interest) for a specified financing period that you agree upon with them. It’s like you are collecting their mortgage payments. It should be noted that we are not talking about a 30-year mortgage loan. The financing period may only be a year or a few years, or it could be even shorter depending on what the buyer agrees to.

Owner financing allows you to sell your house quickly and should net you a little more money than a cash sale. The final selling price of the property may be similar, but you are gaining from the interest payments as they pay off the principal. Again, you will want to make sure you have a strong contract in place to protect yourself. You are taking some risk as the “lender” in this situation, so the contract should allow you to take back the property if the buyer defaults. Real estate investors, empty nesters, inherited property owners and second home owners will use owner financing as an effective home selling method when all the factors line up successfully.

When you work with PropertyLark to sell your house, we will help you explore all your selling options. We will review your situation and work with our network of home buyers to determine a solution that makes sense for all parties involved. Whether it’s a pure cash deal, a traditional open market sale or one of these more creative seller financing options, we’ll help you determine which is best for you and your family.

To get started on your offer process with PropertyLark, fill out the contact form on any page of our website (it’s also over to the right of this very page). It will lead you to a brief questionnaire that you can fill out and let us know more about your house and your financial situation. Then, we’ll contact you to discuss your best selling options and make our official offer.