A Choice Between Lease Option or Seller Financing to Sell Your House Fast
Property advertisements come with several ways like lease option and owner finance especially when the real estate market is soft. During this time, property owners understand that it is now the time of buyers’ market rather than the sellers’ market, leading these owners to be creative in selling and in concessions.
Sellers therefore are becoming creative in their financing solutions to face the tightening credit markets to shorten listing times, entice buyers and compensate for the situation.
Their first approach is a lease option which allows a potential buyer to lease or rent the property combined with an option to later buy the property. The option money paid by the potential buyer is generally cannot be refunded, however, a part of the lease payments can also be applied on the purchase price.
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Another method that sellers would offer to help entice potential buyers is the seller financing, and this involves a property sale wherein the owner of the property agrees to finance all or part of the amount purchased on behalf of the buyer. This method is also termed as owner financing or instalment sale, where the buyer makes the payment to the seller for the agreed period of time rather than getting a bank loan or a traditional mortgage loan.
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Considering what these methods offer, it is also advisable for the seller to check out the pros and cons from his or her point of view.
Among the advantages of the seller financing methods are that the down payment is generally greater, real estate taxes, property insurance and upkeep belong to the buyer, and since the buyer already bought the property, they act like the owner already thus care is given on the property. Another advantage of this option is that there is greater liquidity with private mortgage note payments than the lease payments thus making it easy to look for investors who will pay cash now for their future payments. Another positive effect of this kind of financing is that the seller gets interests on the amount financed. One big con in this arrangement is that if the buyer becomes delinquent on payments, the seller will have difficulty to foreclose as compared to the eviction process. Another disadvantage of this arrangement is that the term of repayment can be longer than a sale based on instalment.
In the lease option, the advantages are that the eviction process is faster once the buyer misses payments, and if the market appreciates, the seller could gain some upside from the increased value of the property if the buyer won’t pushes through in purchasing the property.