Sell Your Property with Interest

2024/08/12

Dyan Tarepe

Image of money bag, cause real estate is a great investment.

Have A Low Interest Mortgage You Don’t Want To Get Rid of? Don’t! Become The Bank!

With interest rates still in the 6-7% range, many property owners are waiting on the sidelines holding onto their pandemic low interest mortgages that were in the 2-3% range. Some are not realizing that interest difference of 4-5% could be their own and not the banks.

How to Offer Seller Financing for a Real Estate Property: Seller financing is a method where the seller of the property acts as the lender, allowing the buyer to make payments directly to the seller over time rather than obtaining a traditional mortgage from a bank. This can make it easier for buyers to purchase a property and provide the seller with a steady income stream. Here’s a quick guide how you can offer seller financing:

  1. Understand Seller Financing
  • What It Is: Seller financing (also known as owner financing) is when the seller provides a loan to the buyer to cover the purchase price of the property, minus any down payment.
  • Why Use It: It can attract more buyers, help sell properties faster, and provide a higher return for the seller over time.
  1. Consult with Professionals
  • Real Estate Attorney: Consult with a real estate attorney(ME!) to understand the legal implications and ensure all documents are correctly prepared.
  • Accountant/Financial Advisor: Discuss the tax implications and financial benefits of seller financing with an accountant or financial advisor.
  1. Determine the Financing Terms
  • Interest Rate: Set an interest rate that is competitive but still profitable. This could be higher than traditional mortgage rates.
  • Down Payment: Determine the down payment amount, typically 10-30% of the purchase price.
  • Loan Term: Set the loan term, often 5-30 years. Consider offering a balloon payment after a certain number of years.
  • Payment Schedule: Decide on the payment schedule (monthly, bi-weekly, etc.).
  1. Draft the Promissory Note
  • Document the Agreement: The promissory note is a legal document that outlines the loan details, including the principal amount, interest rate, repayment schedule, and consequences for default.
  • Include Legal Provisions: Ensure the note includes clauses for late payments, prepayment penalties, and what happens in case of default.
  1. Prepare a Purchase Agreement
  • Include Seller Financing Terms: The purchase agreement should clearly state that the transaction involves seller financing and outline all agreed-upon terms.
  • Contingencies: Include any contingencies, such as home inspection or appraisal.
  1. Secure the Property with a Deed of Trust or Mortgage
  • Deed of Trust/Mortgage: This document secures the property as collateral for the loan, protecting the seller’s interests.
  • Record the Document: File the deed of trust or mortgage with the local county recorder’s office to ensure it’s legally binding and enforceable.
  1. Close the Sale
  • Use an Escrow Company: An escrow company can help manage the closing process, ensuring all documents are signed and funds are properly distributed.
  • Transfer Ownership: Once all documents are signed, and the down payment is received, transfer the title to the buyer.
  1. Collect Payments
  • Payment Collection: Set up a system for collecting monthly payments, either through a third-party servicing company or directly from the buyer.
  • Track Payments: Keep detailed records of all payments received and monitor for any late or missed payments.
  1. Manage the Loan
  • Stay in Communication: Maintain open communication with the buyer, especially if they encounter financial difficulties.
  • Consider Early Payoff: If the buyer wants to pay off the loan early, be prepared to negotiate any prepayment penalties or discounts.
  1. Plan for Default
  • Default Process: Be prepared to take action if the buyer defaults on the loan, which may involve foreclosure or taking back possession of the property.
  • Legal Guidance: Work with your attorney to follow the legal process for handling a default.
  1. Review Regularly
  • Periodic Review: Regularly review the terms of the loan and the buyer’s payment history to ensure everything is proceeding as expected.
  • Adjustments: Be open to renegotiating terms if necessary, especially in changing economic conditions.