Thinking of Owner Financing Your Home in Minnesota?

Thinking of doing owner financing to sell your home?

Well, that's not a bad idea if you do it right and know what you're getting into.

But you DO need to know what you're getting into.

There are a lot of ways to sell a house. You can list it on the market and see what buyers will pay. You can sell to a real estate buying company (like us here at Trademark Properties) for a fair all-cash offer. Or you can "be the bank" and sell your house to a buyer who pays you over time.

Owner financing is a valuable but under-used way to sell a house. Here in Minnesota it's been around a long time... a lot of people know it as a contract for deed.

How owner financing works in Minnesota

There are two common ways to do it here:

• Contract for deed. You keep the title (the legal ownership) until the buyer pays off the contract. The buyer moves in, makes payments to you, and gets the deed at the end. This one is really common in Minnesota.
• A note and mortgage. You deed the house to the buyer at closing, and they sign a promissory note and a mortgage to you, just like they would with a bank. You're the lender.

Each one works differently if something goes wrong, so it's worth understanding the difference before you pick.

The pros

Sell faster. Sellers who offer financing can often sell more quickly, since you're open to buyers who can't (or don't want to) get a bank loan.

Sell as-is. Bank loans come with appraisals and inspections and lender repair requirements. With owner financing, there's a lot less of that.

Steady income. You get monthly payments, with interest. For some people that's a better deal than a lump sum sitting in a savings account.

A possibly better price. Since you're offering something a bank won't, buyers are often willing to pay a little more.

The cons

More work up front. You'll need paperwork drawn up, and you'll want to vet your buyer.

The buyer might stop paying. This is the big one. With a contract for deed in Minnesota, if the buyer defaults you have to go through a cancellation process with a written notice and a period for the buyer to catch up (often around 60 days). With a mortgage, you'd have to foreclose. Either way it takes time and money, and if they won't leave, you may need to go to court to get them out.

Repairs if you get it back. If the buyer stops paying, there's a good chance the house won't be in great shape when you get it back.

You have to stay organized. Tracking payments, interest, taxes and insurance for years.

Rules and regulations. The Dodd-Frank Act puts rules on sellers who finance houses for people who are going to live in them. There are limits on how many of these deals you can do each year, rules about checking that the buyer can afford it, and restrictions on things like balloon payments. Minnesota also has its own contract for deed rules, like recording the contract with the county within 4 months.

6 owner financing tips for sellers

Tip #1: Don't focus only on price

Price is just one piece. The terms can end up being worth more to you than the price.

Tip #2: Think about the timeline

Banks do 15 and 30 year mortgages. Do you want to be getting payments for that long? A lot of owner-financed deals have a shorter term, where the buyer refinances with a bank in a few years.

Tip #3: Nail down the terms

The terms are one of the most important, and most overlooked, parts of the deal. How much down payment? What interest rate? What happens with late payments? Can they pay it off early? A bigger down payment means the buyer has more skin in the game.

Tip #4: Protect yourself

Even if the buyer is completely trustworthy, things can still go wrong. Make sure the buyer keeps insurance on the house with you listed on it, and that the property taxes are getting paid.

Tip #5: Plan for "what if"

What if the buyer wants to pay it off early? What if they want to sell? What if they lose their job? Agree on these things ahead of time and the whole arrangement will go a lot smoother.

Tip #6: Get an attorney

No matter how you set it up, work with a Minnesota real estate attorney. A poorly written contract can really hurt you down the road.

Want to skip the headaches?

If you'd rather not be the bank, we'll make you a fair all-cash offer on your house as-is. No repairs, no commissions, we pay the closing costs and you pick the closing date.

And in some situations, we can buy houses on terms ourselves, where you're the bank and we make the payments. If that sounds interesting, ask us about it.

We're not attorneys and this isn't legal advice. Owner financing has a lot of rules, so please talk with a Minnesota real estate attorney before you sign anything.

Hope that helps! Give us a call at Call us or fill out the form. There's never any obligation.