Selling a house without equity might seem impossible and complicated. For most folks the biggest unknowns can be:
Do I have to do a short sale?
Do I have to pay out of pocket at closing?
What if I have to move quickly and don’t have time to get banks/agents to make something happen?
From a technical point, these factors can be intimidating. A short sale might be an effective method, but it can rack havoc on your credit… especially if you want to buy another property. And you definitely will have to consider how much it will cost when selling with an agent and you don’t have enough equity to cover the fees and commissions. You will most likely have to come to the closing table with a check. And if you’re in a hurry, a short sale or a straight retail sale with an agent will probably not be the best option for you.
However, when you don’t have any equity, or even happen to be upside on your mortgage, you can be a little more open when it comes to selling.
There is a process that makes selling your house by owner straight forward and simple… even with no equity.
This method is called selling with a lease purchase (or rent to own). This is when you lease your property with an option to buy. You sell your property to a qualified tenant/buyer for a set amount anything during the lease period. (which can be anywhere from 6 months to 10 years). You might be wondering why you would sell this way?
When you sell with a lease option, your get to tap into a huge market of buyers that for whatever reason can’t qualify for a conventional mortgage right now. Now don’t get me wrong. These aren’t some dead beats with bill collectors chasing them. These are hard working folks with families and good jobs. They have the income, they fully intend to buy, and want to move into their own home. They might have some credit issues from the last housing bubble like having an adjustable rate mortgage and getting hit when their interest rate adjusted sky high. And other similar situations.
Now most of these folks will qualify for a mortgage in a little time as they get their credit rating high enough for lenders, since these lenders now make people jump through a hundred hurdles before closing a loan. When these tenant/buyers purchase your house through a rent to own, their credit shows them making their payments on time, every month, which significantly improves their lend-ability in the eyes of the lender. And once they near the end of the lease term, a good portion of them will get their loan and cash you out.
This makes great financial sense for you, the home seller, since you don’t have to show up to the closing table with any cash (which you would have to do if you have no equity or upside down) from selling by not using an agent and having to cover fees, closing costs, and commissions. And the best part, you’ll be getting your mortgage payment covered every month until they cash you out.
Selling this way might not be right for you, and if you can wait a while to find a cash buyer or a buyer with a huge down payment that will pay full retail or higher, then that would be the best way to go. However, if you need to sell, and need immediately (as little as 7 days) mortgage payment relief, then this is by far the best way to go. You get a quality, well qualified tenant/buyer in your property that actually wants to buy. Not a renter bouncing around from rental to rental that will call all hours of the night when the toilet breaks down. But a bon-a-fide buyer, paying on time, taking care of all repairs, and working with a mortgage broker every month to cash you out. This is the way to go.
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