9 Things to Know About Seller Financing

If you're selling your home FSBO (For Sale By Owner) and have a buyer who is not able to get conventional bank financing, and you’re willing to be creative and flexible… and take a risk, you can make whatever terms you want. As the seller, you become the bank.

This is the 3-bedroom house I have for sale. Make an offer!

Perhaps your buyer has too low a credit score to meet bank criteria, but has cash for a down payment and can make good-sized monthly payments. If they have steady employment that pays well you may consider offering them non-traditional terms. Everything is negotiable.

Risks: Some other risks to be aware of: The buyer is self-employed. The buyer is employed in a high-risk profession where his/her job could be cut. The buyer is in a dangerous profession: military, law enforcement, car racing. The buyer is a single parent who doesn’t work but receives alimony and child support. The buyer is older and on a fixed income. The buyer is a full-time student who also works. The buyer doesn’t work but has a trust fund or inheritance. The buyer won a big settlement or lottery windfall.

Purchase Price: As the seller you can make the purchase price whatever the two parties agree upon. If you’re selling FSBO you could lower the selling price somewhat since you won’t need to give a 5-6% commission to a real estate agent.

Chattel: As the seller you can raise the price by including appliances, furniture, furnishings, window treatments, additional buildings on the property, above-ground pool, vehicles, and even livestock, if you choose. Or you can ask for cash for these rather than have them included in the mortgage; or if the buyer doesn’t have much cash you can add these to the purchase price. You can also subtract items.

Down Payment: As the seller you can make the down payment any amount you want. You can lower the percentage from 20% to 10% to 5% to 3% or even 0%. A down payment doesn’t have to be cash, but could be a vehicle, a boat, an RV, artwork, or even a cabin in the woods… if you’re willing to trade. You can even require the buyer to perform services for you in lieu of cash. Of course the service must be legal. No "funny business."

Interest Rate: As the seller you can increase or decrease the mortgage percentage rate, but be careful of usury laws in your state. You cannot implement a rate of interest that is excessively high. For example: Pennsylvania caps the interest rate at 6%.

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This is my other house for sale. Feel free to make an offer.

Amortization Schedule: As the seller you can make the amortization 10 years, 15 years or 30 years if you wish. You may wish to go with 15 years with a balloon payment at the end of 2 or 3 years. By that time the buyer will have made 24 or 36 on-time payments with a lower amount to be mortgaged at the end and can then secure bank financing.

Other Terms: Both seller and buyer can negotiate the closing date, possession date, and almost anything you can think of. If a buyer is creative he/she may want to make multiple offers – high, low and middle – so that you can pick the one you prefer. Some buyers even include a letter to the seller explaining their intentions with the house.

Who keeps the title? Just as a bank would you, the seller, keep the title until the entire amount is paid off. If the buyer is able to get a conventional loan at the end of the 36 (or 24 or 48 months) you, the seller, relinquish the title to the bank when you’ve been paid in full at the closing.

What happens if the buyer defaults? If the buyer defaults on payments, you as the seller can foreclose on the buyer and take back the house. This requires legal assistance; you cannot do this alone unless you are a qualified attorney. Choose an honorable buyer and you won’t have to foreclose.

CANCELED DUE TO LACK OF INTEREST: Seminar, June 30, 6 PM www.BitangoHouse.com/class.html

OUTCOME: Failure. No potential buyers signed up for my class to learn how to buy a house with seller financing and how to write a proper offer. After a few discussions, no offers were received to buy or rent the house. I won't be offering the class again.

Today's recommended resource: Sell Your Mobile Home in Fewer Than 60 Days Buy it, Read it, Act on it.
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