Is your house just sitting there? Are you thinking of selling and looking for ways to make your property just a little more attractive? Have you contacted several real estate agents in your area for a competitive market analysis? Do you just want to do something different?

How about using owner financing to help make your home more appealing?

Why would you consider this? You may not have the desire to provide "owner financing" but if you're in a situation where the market is slow, you want to maximize your sale price, or your potential buyer cannot get financing from a commercial lender, then here are a few things to consider when your potential buyer needs financing help

First, can you afford it? Can you afford to go without a lump sum payment to you at the closing table? If so, then by all means consider it. A mortgage payment to you is much like any other fixed instrument product such as a bond or note, you are guaranteed a certain percentage each month during the term of the note, regardless of what the stock market is doing. There's lots of folks out there right now who would like to get an 8 percent return instead of losing everything they've invested in some dot-com venture. An 8-percent $200,000 15-year fixed loan would yield more than $144,000. If you don't need the proceeds from the sale of your home for anything else such as retirement or to buy a new home, then a monthly income might seem attractive.

What about risk? You'll need to check the buyer's credit report and then do some debt calculations on your own. Take their gross monthly debt such as car payments, credit card payments and other installment loans and add to that their new monthly house payment. That total should then be divided by their gross monthly income to obtain a percentage, or decimal, often called their debt ratio. Most lenders suggest that percentage should be no greater than 40 percent in most cases. If you find that this "debt ratio" is higher, your prospective purchasers may be unrealistic, buying over their heads, and could have difficulty paying the note on time each month.

What about other items lenders consider looking at loans?

• Length of time on the job shows stability as does time served in the same line of work.

• More down helps reduce potential negative factors and creates more security for you, the lender.

• A good credit history -- a credit report with few late or missed payments.

• No recent bankruptcies and foreclosures.

• An ability to save. Have your potential buyers established a savings account or 401(k)? Or do you see on their bank statements lots of money going in, but just as much (or sometimes even more) going out?

Lenders who make loans to those with recent bad credit will often ask for as much as 35% down and price their interest rate 4 to 5 percent above than what they offer their best customers. If you're acting as a lender, should you expect less?

Some people want owner-financing because their unique situation may disqualify them for a conventional loan. Many times, for example, newly self-employed borrowers find themselves in this position. Or someone who has changed careers from say, someone selling software to managing an office building. Such "out of the box" situations can deprive deserving buyers of the financing they need.

When reviewing your potential home buyers for seller financing treat them like a lender. Look for the ability to pay using lender debt ratios and credit history standards. Always insist on a strong down payment. Require loan documents prepared by your attorney -- and be wary of a purchaser who conveniently offers to supply loan documents. Work with your broker to provide terms and conditions that work best in your market area.

There are many folks who prefer to buy a seller-financed property, and if you decide to offer such loans make sure the people to whom you sell will pay on time...every time. And everyone will live happily ever after.

For more articles by David Reed, please press here.

Published: March 2, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.