Owner Financing Tips for Sellers
It’s a tough time to sell a house.
In an effort to sell fast and stand out from the crowd, sellers are turning to owner financing. By accepting payments over time from the buyer, the seller provides an alternative to bank financing.
Seller financing attracts more buyers and helps the owner get attention in a market flooded by oversupply from foreclosures. Of course sellers don’t want to jump from the frying pan into the fire by trading a house that won’t sell for a buyer that won’t pay.
Here are 5 safety tips for sellers considering an owner carry contract:
Tip #1 – Review the Buyer’s Credit
How buyers have paid bills in the past is a good indicator of how timely they will make future payments. Always review the buyer’s credit prior to accepting a promise to pay. Sellers can obtain a signed authorization from the buyer to pull credit through a reporting agency, or the seller could simply ask the buyer to obtain a copy of his or her report for the seller’s review.
Tip #2 – Get a Down Payment
The more money a buyer puts down, the more “skin” they have in the deal. The greater this equity, the lower the likelihood the buyer will stop paying.
When people have little to no equity, they are more likely to default or just walk away from the home. Few sellers want the hassle of taking back a property through foreclosure, so increase the odds in your favor by requiring a down payment.
Tip #3 – Set the Terms
The terms include interest rate, payment amount, frequency, and the due date for payment in full. There are also late fees, default clauses, requirements for insurance, and other standard provisions.
While the terms can be whatever the buyer and seller agree upon, it makes sense to set terms that are affordable to the buyer AND favorable to a note investor. This way a seller is more likely to own a note that is valuable to an investor in case they ever want to sell future payments for cash.
Tip #4 – Get Help with the Documents
In addition to putting the terms in writing, the documents evidence the lien. The obligation to pay (or IOU) usually takes the form of a promissory note, which is secured by an owner mortgage or trust deed recorded in the county records. A land contract or real estate contract are also used in some states. A qualified attorney or title company familiar with local laws should prepare the closing documents.
Tip #5 – Collect Payments Like a Pro
Tracking the payments, interest, and balance is often referred to as servicing the note. In addition to collecting payments, a servicer should verify the real estate taxes and insurance are kept current. The seller can perform servicing but it is a whole lot easier to hire a third party company to handle this process.
How to Sell Your Mortgage Note
Tired of receiving monthly payments?
Wishing for a lump sum of cash today?
If you sold property with seller financing chances are you’ve wondered about selling the real estate note. Here’s how to sell a mortgage note, trust deed, or contract in 7 easy steps.
Step #1 – Request Quote
Just complete a short informational worksheet to receive a free no obligation quote. This can be submitted online, by fax, or over the phone.
Step #2 – Provide Document Copies
To get started note buyers like to see copies of these three documents:
Settlement Statement
Promissory Note
Mortgage, Trust Deed, or Contract
It is also a good time to be sure you know where the originals are located, especially the Promissory Note, as they will be requested at closing.
Step #3 – Accept Offer & Agreement
Once an offer is accepted it will be outlined in a written agreement. In addition to stating the price, the agreement will specify conditions of closing and who pays costs.
Step #4 – Note Buyer Review
The mortgage note buyer will perform a detailed review of the transaction, known as due diligence. This includes a review of the buyer’s credit, current tax and insurance status, payer interview, and other important items. They may also request copies of additional documents including a payment history, insurance policy, and existing title report.
Step #5 – Appraisal
The note investor will order an evaluation of the current property value. This usually takes the form of a BPO or drive-by appraisal. The investor wants to be sure the property value is still equal to or greater than the sales price. If the value comes in low, the note investor may present a revised offer for consideration.
Step #6 – Title Search
The title search verifies ownership of the property and the mortgage note. It saves
time and money to work with any title report that might exist from the original sale date. If the title search shows money is still owed on a prior mortgage it will usually be paid from proceeds.
Step #7 – Closing
When all steps are complete the note buyer will send the final closing documents for signature. The title company is often used to handle the exchange of money for the original note and transfer documents. Funds are typically paid in the form of a wire transfer or cashier’s check. You are also encouraged to have your attorney review and advise with the closing process.
Selling your mortgage note can be a simple process when you work with an experienced note buyer. Just take a few minutes upfront to gather your information and documents and they will handle the rest for you!