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Seller Financing

If you own a piece of property and decide to allow a buyer to make payments to you over a period of time (monthly, annually, etc.), this is known as “seller financing.”  Typically a title company or attorney would create a contract between the buyer and seller stating the purchase price, down payment, monthly payment, and interest rate. This would then “close” like any other real estate transaction and the buyer would begin to make monthly payments, usually through an escrow agent, with the proceeds being sent to the seller.


A Few Common Reasons for Utilizing Seller Financing

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arrowThe seller prefers to receive monthly income rather than payment in full at the time of the sale.

arrowA good buyer cannot qualify for a traditional mortgage.

arrowThe property for sale does not meet requirements for traditional loans.

arrowA larger group of potential buyers is desired.  In a slow market, owner financing creates more interest in your property.

arrowAt a later date, after you have received monthly payments for a period of time you may choose to sell your interest for a lump sum.  There are many companies and individuals who buy the seller’s interest in owner-financed properties.


Top 10 Things to Remember When Using Seller Financing

soldarrowEscrow Agent—Always use a licensed escrow company such as Roswell Escrow Services, Inc., to act as a neutral third party.  They will calculate the principal and interest, send out reports, pay taxes and insurance, and make sure everything is handled in a professional manner.

arrowDown Payment—A down payment of 10% or 20% will reduce the risk of default.

arrowCredit Check on Buyer—Obtain a copy of the buyer’s credit report.  If the credit is not good, you may want to require a higher down payment and/or a higher interest rate to protect your property.

arrowTerms of the Contract—If you think you may want to sell your interest in the contract in the future, remember that the higher the interest rate and the shorter the term, the greater is the cash value of your contract.

arrowAssignment of the Buyer’s Interest—Be sure to require that the buyer obtain your written consent before he can assign your contract to another buyer.

fsob_malearrowTaxes and Insurance—Be sure the contract requires the buyer to maintain insurance on the property showing you as the mortgagee and also requires that the buyer pay all future property taxes.  You will have the best protection if you have the escrow company collect funds with the monthly payment and pay the taxes and insurance when they come due.

arrowLate Charges—To encourage prompt payment, include a late charge after 10 or 15 days past due.

arrowPreparation of Legal Documents—Be sure to use a title company or attorney to prepare your contract and deeds, promissory note, and mortgage or deed of trust.

arrowTitle Insurance—It is important that you obtain title insurance to ensure there are no liens and the title is clear.

arrowClosing Agent—It is always best to use a neutral third party to close your transaction.  Title companies are experts in this field.

Still have questions? Call our office today and speak with a helpful representative. (575) 622-3513.