Linda R. recently sent me a question that I thought I would answer here on the blog:
At the moment I live in a rental home but I would really like to see if the owner would be interested in a Home Owner Financing so I can eventually own this house. How do I approach the subject of Owner Financing to the owner of the house?
If your living in a home that you think the owner would want to sell this is one of the best ways to structure an owner financed deal.
There are a few things to keep in mind though.
The first thing you want to know is the owner open to financing?
Also, you’ll want to be careful here because you want to make sure you have the ability to negotiate a good deal that works for both you and the owner.
I’ll Explain a Bit
You have to make sure you bring up that you want to buy the property in the right way.
Of course this depends on the relationship you have with the owner. But what I’m talking about here is more about human nature.
I’ve seen this happen to many times not to mention, a tenant loves a home and contacts the owner excited about possible doing a rent to own or a contract for deed.
All goes well at first as the owner is open to selling but once you get to the pricing, term, what type of deal (RTO or CD) then things change.
That’s where the human nature comes in really. Imagine yourself in the same position. Someone comes to you and says they would be open to buying something of yours. First you think, sure your open to that. Then your mind starts running, you have someone interested, that’s where most people enter the point of the us-vs-them negotiating tactic.
Meaning, I have something someone on the hook and I’m going dig in.
So How Do You Make Sure You Do It Right?
The first step is for you to know exactly what it’s going to take for you to get financing. Meaning can you afford the house (based on what you think it might be worth) based on current rates, your income, etc.
Also, how long is going to take for you to get financing. Do you have credit issues? Do you need to come up with a down payment? Also are there any financing things you need to be aware of since you currently live in the house?
A good banker or mortgage broker should be able to answer all these questions for you.
Let’s say you’ve answered all those and you can afford the house and you need roughly 2 years before you can really apply.
You also want to do a little due diligence and figure out the current value of the home your living in. You can visit sites online but usually if you know a local real estate agent that you trust this is your best bet.
I know this is a lot of setup here just to get to the main point but going in a little educated about your situation and the value of the property is very important.
Now You Should Approach the Owner
Here’s what I suggest. You can do this in person or on the phone. The key here is you want to see if the owner is just open to offering owner financing. You can say something like the following:
“ We’ve been really enjoying living in your property and thinking about our future. I was wondering if you have considered selling your property?”
The reason why you start here and not if the owner will finance the property is if you ask first if they will offer financing before you even know if they are open to selling you’ve just jumped a few steps ahead. It’s better to see if they are even open to the idea. Plus this way it gives a really natural flow to negotiating a deal.
Let’s say the owner is open to selling the property. That’s when you ask if they would be open to doing some form of owner financing. Usually you can say something like:
“Great, would you be open to talking about how we could do something like a rent to own or a contract for deed?”
If they say yes I suggest you try to end the conversation there (in a natural way). Meaning try to set up a follow up time to either talk on the phone or meet in person.
The reason for this is you’ve already done your due diligence but this is something that you’ve just brought up to the owner. They will need time to let it sink in, consider their options, etc. This is not the time to start negotiating because their natural fall back will be to negotiate hard because they haven’t yet had time to really come to any conclusions yet.
Finally, You Should Do This
Let’s say you’ve gone thru all the steps above and you’ve negotiated a good deal. That’s where the things I talk about in the How to Buy Owner Financed Homes Book, Audio, and Videos come into play.
It’s important that you still verify financing, carrying costs, insurance, have the right contracts, and quite a few more things.
Image by Moyan_Brenn