Home Sales: Which Kind of Offer Is Right for You

Often when selling a home, one of the last thoughts homeowners give is to what kind of an offer they prefer to take given their timeline, desired amount of money, or other important considerations related to the form the purchase price takes. The distinctions often come down to the method of payment and whether or not financing is necessary for your transaction.

FHA Home Loans

FHA home loans are named for the Federal Housing Administration which insures the loans and they are provided by FHA-approved lenders. Often, low down payments, low-interest rates, and lower credit requirements characterize these loans which are popular financial tools. As a seller, these loans may be more restrictive if the property is in need of repair or there is another issue with the condition of the property. Additionally, these loans may be a hindrance for someone who is selling a condominium as some buildings are not FHA approved.

Conventional Loans

These are often the loans many people think of when buying a house where creditworthiness is evaluated in a conventional manner and a bank determines how much financing a buyer is eligible for. However, this isn’t always the case. Some banks have been providing conventional loans to riskier borrowers with lower down payment requirements. Oftentimes, these loans are less restrictive on sellers as they do not require approved standards for homes or other domiciles although they do need to be in livable condition with no major structural issues. Condominiums have a separate requirement to complete a financial stability questionnaire.

Cash Buyers

Cash buyers are likely the easiest “financing” a seller will have to deal with as there are fewer hoops to jump through. Oftentimes sellers and buyers can agree on terms and come to a deal regarding price without paying a realtor or other fees associated with a transaction. This may also allow the seller to sell a property that may not have passed an FHA or other inspection. On the buyer’s side, this may allow the buyer to command a lower price for the property given the lack of requirements.

Owner Financing

Many times, sellers, especially those who are using a property as an investment, are able to offer owner financing to potential buyers. This helps lower the cost of a mortgage’s fees and other administrative costs and creates a long-term revenue stream for the seller. On the buyer’s side this may help them avoid dealing with the bureaucratic red tape that often accompanies mortgage lending from a bank or other creditor. This arrangement is especially helpful when an expedited sale is in the best interests of both the buyer and seller and the seller doesn’t need all the cash from the property immediately and they do not owe money on the property.

Rent to Own

There are a variety of ways to structure a rent to own deal which ensures top dollar for the seller. The main difference between this transaction and owner financing is that this transaction begins as a lease and creates an option to buy at a certain point. This may be most attractive for sellers who are amenable to an eventual sale but wish to create a reliable income stream for the time being.

Summary

Every transaction is unique and the circumstances of what financing makes sense for sellers and buyers will depend on each person’s financial situation. Every sale should be looked at thoroughly including contract terms, liability, and other factors that may or may not involve financing.

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