Handling FSBO Properties
FSBO refers to real estate which is listed for sale by the property owner instead of through a Realtor. When property owners act as the selling agent they do not have to pay realtor commission which normally amounts to 4 to 6 percent of the purchase price. Eliminating agent commissions allows property owners to generate higher profits or reduce the asking price of their home.
Selling FSBO real estate requires property owners to have a solid understanding of the process. Some homeowners prefer working with a real estate attorney to draft purchase agreements and record property transfers. Doing so ensures contracts are legally binding and that property deeds are properly recorded through the court.
Homeowners should review their current mortgage loan documents to determine if a prepayment clause exists. Lenders often include prepayment penalties when borrowers sell their home within a certain number of years. In most cases, penalties are assessed if the loan has been in place for less than five years.
Others lenders include early payoff penalties which decrease over the course of the loan. Prepayment penalties can amount to several thousand dollars. If borrowers do not realize the prepayment clause exists they could lose money on the sale by not incorporating the penalty fee into the asking price.
Buyers and sellers of FSBO real estate must also calculate closing costs. Common costs involved with the sale of property include: loan origination and application fees, property appraisals, home inspections, legal fees, mortgage insurance, and homeowners insurance. Closing costs typically range between 4 and 6 percent of the purchase price.
When borrowers require bank financing to purchase for sale by owner properties they should spend time researching mortgage loan options. One good source for home loan comparison is BankRate.com. Visitors can use mortgage calculators to enter their state, loan duration, selling price, and down payment amounts to determine their monthly payment.
It is a good idea to obtain a current credit report to determine FICO scores. Those will credit scores below 700 are often assessed higher rates of interest. As little as one-quarter percent additional interest rate can add thousands of dollars to the overall cost of the loan.
Many mortgage lenders require borrowers to have a minimum score of 720 to qualify for a home loan. When scores are less than 720, banks often assess a higher interest rate and may require buyers to provide a higher down payment.
Individuals with bad credit may not qualify for financing through conventional lenders. However, they may qualify for special financing through organizations such as Fannie Mae, Freddie Mac, or HUD.
Buyers who find exceptional deals on FSBO property, but cannot qualify for financing may be able to enter into creative financing options such as lease purchase option agreements or seller carry back trust deeds. These options grant borrowers time to engage in credit repair strategies to improve credit scores.
Purchasing for sale by owner real estate isn’t any different than buying houses through a real estate agent. Both parties must abide by real estate laws and record property transfers. FSBO sellers must provide a disclosure statement listing any known property defects.
Buyers of FSBO property should obtain preapproved financing from the lender of their choice. While preapproved financing does not guarantee the buyer will qualify for financing, it does inform buyers of how much home they can afford and shows buyers they are serious about buying real estate.
Prequalified buyers often have an upper-hand over buyers who have not obtained preapproval. Loan prequalification can sometimes allow buyers to negotiate a reduced purchase price. Sellers who need to sell their FSBO property quickly may accept reduced offers in exchange for a quick sale. In today’s real estate market finding a qualified buyer has become challenging. Those who can qualify for a home mortgage loan possess buying power that can be used to their advantage.
Sellers of FSBO property that find it challenging to locate qualified buyers may want to consider seeking out real estate investors. Many investors are buying houses with cash which can expedite the process because they do not need to wait for loan approval.
Buying for sale by owner real estate can save both buyers and sellers a decent amount of money as long as appropriate contracts are in place. Before listing your home as FSBO be certain to thoroughly understand the process and have all contracts and documents reviewed by a lawyer to ensure the sale follows protocol and to minimize potential risks.