How To Use Seller Financing To Finally Sell Your Home

Sellers sometimes agree to finance all or part of a home's purchase price. When this occurs, a seller in essence assumes the role of a lender. Just how does this lending arrangement work? And, as a seller, when would you consider carrying the financing, and what should you keep in mind when you do?

* Basics of Seller Financing:
With seller financing, the buyer receives a credit toward the purchase price of the property. That credit may cover a portion of the price or the entire purchase if the seller owns the home free and clear. Either way, the buyer makes a promise to pay, evidenced by a promissory note, and the property serves as collateral for the loan.
How the loan is to be repaid and other loan terms are usually negotiated between the buyer and seller. So there can be numerous variations on the way these loans are structured. Because there are no preset provisions as you would typically find in a mortgage from a traditional lender, a seller-financed loan can be as flexible as the parties involved. It is up them to determine and agree on terms like interest rate, payment amount, late charge stipulations (if any), due dates, length of loan, and so forth.

* Considering "Taking Back" a Mortgage:
When and why you might consider offering financing is affected by factors like market conditions and personal financial situation. If the housing market is slow or you are anxious to sell, then seller financing could attract buyers and be an incentive for purchase. It could also be a viable option if, for tax purposes, you prefer to receive payments over time instead of a lump sum. Of course you must be in a financial position to carry the financing. If you need all of your equity at the time of the sale, then seller financing would not likely make your list for consideration.

* Protecting Your Interests:
If you are thinking about offering seller financing, here are a few pointers:
Seek legal and financial advice. The interest you earn on the loan is taxable income. As a result, this can affect your income tax situation. You should clearly understand the implications before you offer financing. If the tax implications are acceptable, have an attorney prepare the loan documents.

* Analyze the buyer's financial condition:
It is crucial that you thoroughly evaluate the creditworthiness of the buyer. The reason is obvious: you need to know if the buyer is able and likely to repay the loan. Ask for and examine documents that any other lender would look at such as their credit report, copies of financial statements or other financial documents. Be sure to verify employment and any other sources of income the buyer will rely on to make their loan payments.

* Give yourself an escape hatch:
When the purchase contract is written, all of the terms of the loan should be included. In addition, you should include a contingency clause that makes the contract "contingent or conditional" on your examination and approval of the buyer's financial qualifications. If they are not to your specified satisfaction, you want to be able to legally walk away from the deal without penalty.
Minimize your risk.

* Get a sizable down payment:
The more money a buyer has invested in a home, the less likely they are to default unless it is absolutely unavoidable. And make sure that you have adequate collateral. The property serves as security for the loan, and if the buyer defaults you need to know that the home is likely to sell for an amount sufficient to cover outstanding debts. So confirm that the appraised value of the property is equal to or higher than the purchase price.
Establish your financial claim. Have your mortgage recorded in public records to establish the priority of your lien, your financial claim, on the property.

If you are a buyer or seller and this all seems a bit intimidating to you, take heart! It's just as intimidating for the other party! Don't lose site of the fact that this is just a normal transaction between two parties who must each benefit if a deal is to be struck.

Buyers are just looking for a fair chance to buy a job and a reasonable return on investment. They usually have modest goals about what they need to earn for the job they are buying. They are usually fair about how they define what they need to receive as a return on investment for the business risks they are assuming.

Sellers are mostly just ordinary people who once bought or started a business and now want to sell it. They want to get the most they can, but they have learned to be practical. They are usually persuaded by fairness and reasonableness. If not that, then they are at least eventually persuaded by the reality of what's possible.

If you are a buyer, seller financing can offer you better terms and a friendlier lender. You will be able to buy the business quicker because you won't have to wait a month for the bank's loan committee to meet. There are no loan processing or guarantee fees and, usually, no invasive lender controls or audits.

If you are a seller, I would advise an early commitment to seller financing. It will save you a lot of time. You'll get a better price because you'll see more buyer prospects. There are many more buyers who can afford to take a chance when the admission price is reasonable.

Seller financing, properly understood and employed, can really benefit both buyer and seller.

Creative home sellers who offer seller financing to potential buyers can often sell their houses more quickly (and at a higher price) in a slow market.

While applying seller financing techniques isn't more difficult than traditional real estate sales, it is important to recognize that the buyers looking for seller financing represent a different target market than typical bank-financed customers.

Similarly, the process for obtaining a large cash payment for the seller after a note is created varies from the conventional real estate closing technique as well. www.cash4cashflows.com/miltonbrown

* Fulfilling a Seller's Need for Cash

In some seller-financed real estate situations, the property owner may have an immediate need for more cash than is available from the scheduled principal and interest payments. This situation often comes about when the seller needs to have enough money to use as a down payment for their next real estate purchase.

In order to quickly obtain a large proportion of the money due from the loan they just created, the seller could sell the monthly note payments to a buyer for a lump sum of cash. By locating someone willing to buy the note payments, the seller will have ready cash for a down payment or any other financial need, for instance, adding to, or creating a retirement fund.

In order to streamline the seller finance sale situation, it is advisable to have potential buyers for the newly-created cash flow at the ready. A seller can start looking for buyers before the note is created, or even before a seller-financed buyer is "lined up". This way, the property seller could have a buyer for the payment stream ready to make the purchase as soon as the new privae mortgage is created.

Locating the Right Note Buyer

But what is the best method to find these note buyers? In stark contrast to locating seller-finance for the real estate itself, a classified ad in the paper is not the best option. Most people looking to purchase a stream of monthly payments do not look in the newspaper for potential cash flows to add to their portfolios. An alternate marketing strategy is required for finding note buyers.

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In recent years, the internet has become the best place to find cash flow purchasers. Using keywords such as "buy monthly payments" or "buy mortgage payments" at a popular search engine website should lead to many interested buyers.

Sometimes there are so many potential buyers, it can be difficult to figure out where to start. Also, cash flow buyers tend to have distinctly different financial parameters; an opportunity that meets the needs of one person perfectly may not be attractive at all to another. Therefore, it is often best to work with someone who could give the seller a general idea about how notes should be structured.

Using Note Finders...

In the secondary finance industry, a unique group of individuals exists who specialize in locating note buyers. These cash flow specialists - often known simply as "finders" - have a unique understanding of what most buyers are looking for. These finders are happy to work with agents and their clients. Many of them utilize online marketing and have Internet websites to facilitate the buyer location process.

The best of the bunch also look in the newspaper for property sellers offering financing, so sometimes a good finder will contact the seller if their property is advertised as FSBO. Finders specialize in helping property sellers locate buyers for secured notes.

Once in contact with a finder, the seller should explain the details of the situation. While note finders won't be able to offer any legal advice or assist with the creation of a note, they are qualified to give general recommendations about what types of terms are attractive to purchasers.
Most importantly, note finders will be able to help locate a buyer for a newly-created cash flow.

Remember, these finders are not note brokers, meaning they will not "show" the seller's note to buyers or act as a representative. They will only pass the information along to someone who would be interested. Once a commitment to purchase the cash flow has been established, the buyer will step in and complete the deal.

When working with a property seller who needs a lump sum of cash immediately after selling their real estate, contacting a finder early in the process of creating a real estate note makes sense.
By involving a qualified note finder BEFORE a note is created, the property seller can receive invaluable input about the payment characteristics that note buyers prefer.

Without this knowledge, the property could sell quickly with the creation of a new note, but the seller might end up collecting the payments long-term instead of being able to quickly "trade" the future payments for an upfront cash settlement. If the property seller will need a large amount of cash quickly, it makes sense to plan ahead for a buyer to purchase the cash flow and involve the services of a note finder.

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When it comes to selling real estate, one of the most difficult and frustrating situations for sellers is when market conditions make it nearly impossible to sell at the desired price point. A high initial listing price might be because the seller simply has an unrealistic idea of how their house stacks up against the competition in the area, or because the owner needs to sell for a set minimum price in order to pay off their loan against the property.

With traditional property sales methods, the only way to prevent the property from sitting on the market indefinitely is to keep dropping the price. Unfortunately, this technique doesn't always work - especially if the seller is unwilling to "discount" their house by much.

In areas flooded with homes for sale, reducing the asking price slightly will not bring the desired result. In fact, it's common that the property will continue to sit on the market without offers, alongside the multitude of other unsold properties with similarly reduced prices.

Anyone experienced in sales understands that making your product stand out from the crowd is a critical technique for success. But if there's too much competition offering the same attributes, the only logical way to attract the attention of serious buyers is to drop the price so that your property is a much better value than the competition.

In cases where the seller is too inflexible with their asking price, this is not a practical solution. Without an alternative strategy, the seller is forced to keep the house on the market for an extended period of time with an unrealistic asking price, hoping for the right buyer to come along. And as you know, that "Mr./Mrs. Right" might NEVER materialize!

The Seller Finance Solution

Property sellers who want to both obtain their desired price and close on the deal quickly should consider seller financing. Seller financing is a powerful tool to remedy real estate situations that otherwise look grim.

Many home sellers (and their real estate agents) do not see seller financing as a viable option. In actuality, seller financing can bring new attention to the listing and invite a different group of potential buyers - thereby opening up a unique, untapped market.

A large percentage of people throughout the country cannot get approved for bank funding to buy real estate because of their credit situation. Many of these people are still in the market to buy a house, however. The "credit-challenged" are often frustrated with the limitations of apartment living or being renters; as a result, many are willing to pay a higher price just for a chance to get seller financing and improve their quality of life.

A savvy property seller who recognizes this opportunity can salvage an unfavorable situation and turn it into a bonafide seller's market. By using this type of creative financing, the seller could actually end up getting more than the original asking price - without resorting to the questionable strategy of patiently waiting for the "right buyer".

Seller finance can enable homeowners to receive a favorable selling price despite bad market conditions. In addition, the real estate agent (if any) gets to close a deal and move on to other sales, while a home buyer with poor credit is able to become a home owner. It's one of those rare situations where everyone at the negotiating table gets what they want.

Paper Tigers

Many home sellers never consider seller financing because they don't understand the benefits. There are also common misconceptions that it's much too complicated to attempt to orchestrate a seller financed deal, or that there are no buyers willing to sign a private note.

Once a property seller takes the time to learn about the basic process, the advantages of offering financing instead of a lower price to sell their property become very clear. Plus, a little education about seller finance will make it apparent that drafting a secured private note is actually a very straightforward process.

The bottom line is seller financing can enable a home owner to "have their cake and eat it too" - i.e., sell at the desired price, close the deal quickly, and even receive additional income from interest payments as well.