A Buy Owner transaction can be just what your bank account ordered, but if you’re not careful to avoid the following five common mistakes a dream purchase can become a nightmare...and fast.
One - one of the biggest things you should never do when you buy owner is give your earnest money to a seller, because once they have it there's absolutely nothing to stop them from spending your hard earned cash before the transaction is closed.
And if the deal falls through, and there are many reasons why it might, you might be unable to get your money back without a long and costly legal fight.
So, never give your money directly to an owner of a "buy owner" property. Instead, put it in a trust account, a service typically provided by attorneys, mortgage closing companies, title companies, etc.
When placed in escrow with one of these entities the money will be dispersed to the seller at time of closing on the transaction, or it will be returned to the buyer in the event the transaction falls through, subject to contractual language specifying these conditions of course.
Two - when purchasing buy owner do not get too personal with the sellers. After all, buying a home is a business transaction, perhaps the biggest that you're likely to make in your life time. So, while it's okay to be friendly you want to keep it strictly professional.
Doing so will enable you to create an at arms length relationship whereby the owner knows that you are out to get the best deal that you can and that nothing is personal.
The consequence for getting too personal with owners is that you might unintentionally say or do something that offends them. And once offended it may be difficult to establish a win - win business transaction. So, keep it professional at all costs!
Three - never make a major purchase right before buying a home, or while you're shopping for one. The net effect is that it will change you income to debt ratio and jeopardize your chances of being able to qualify for a mortgage loan. This is true whether you buy owner or through a real estate agent.
In case you don't know it, the income to debt ratio is what mortgage lenders use to determine how much house you can afford to buy. So, it's best to wait until after you get the house to spend money on big ticket items.
Four - another issue that cannot be ignored when purchasing buy owner are deed restrictions; rules that govern what you can and cannot do with the property. If it has always been your dream to have a pool in your backyard, you want to make sure that you don’t buy a home in a subdivision that won’t allow it because of deed restrictions.
Finally - ask the seller to give you a home inspection, then find out when the inspection will be performed. Then make it a point to be there when it occurs so that you can see and hear first hand what the issues are with the home.
Avoid these 5 common "buy owner" mistakes and your purchase could be as smooth as hot butter.