If you want to be the bank, just make sure you are covered. Seller financing CAN work well for both parties.
I personally would not be willing to take back a second loan, but I would seriously consider a first loan if I owned the property free and clear or nearly so.
The interest rate you would charge would need to be high enough to make it profitable for you and provide a good income stream, yet not fall into the category of usury (illegally high interest).
The down payment would need to be substantial - the buyer needs to have some equity in the pot too.
Repayment terms are important too. When do you want the rest of the money?
Worst case scenario is that you foreclose and take the property back, keeping the down payment and the rest of the interest payments.
A lawyer can prepare the purchase contract, note and deed of trust. You can also use www.circlelending.com as a resource. I've had good success with them in the past.
Make sure you know who you are dealing with. Run credit reports, check their backgrounds, verify employment, check out their bank statements, etc. Some buyers explore seller financing as a legitimate financing alternative although there are some scammers out there.
Check also with your tax professional regarding the benefits of doing this type of transaction. You may be able to defer any capital gains taxes over time. It's worth looking into.I have someone interested in home house for sale if I can do ';Seller Financing'; bad idea.err what is it?
This is a person who wants the seller to be the ';mortgage'; company. It is a bad idea unless you are very skilled in real estate. I am a mortgage lender and it's not a scam, but the person probably has terrible credit and cannot get a mortgage approval.
Seller financing is also know as a Contract for Deed or a Land Contract. Basically you are the bank. You can make your own interest rate and the contract heavily favors you, the Seller.
A typical Contract for Deed would have the seller paying you via a balloon loan-a loan where the remaining balance becomes due in full after a short time such as 3 years. The buyer makes payments to you (based upon your interest rate), every month (again, YOU are the lender/bank). If the buyer fails to make a payment, or a couple payments (your choice) the Contract can be structured so that you can evict them from the premises and keep whatever $$$ they paid you thus far. It SHOULD be structured that way since you are taking all of the risk that a Lender would take.
Usually a CFD is done when the buyer cannot get a loan elsewhere. If their credit is as high as they say I can see only 2 reasons why they couldn't get financing: 1) they have too much other debt so their debt ratio is too high to support a bank loan, or 2) they are lying about their credit score.
Caveat Vendor my friend, let the seller beware. Have an attorney look over the contract before you sign it.
Don't do it. If the buyer can't get financing from a bank, you don't want to extend it yourself. You run the risk of losing everything.
Plus you'd have to wait 10-15 years to get your money out.
Yup, it doesn't sound good. They would work things out to their advantage instead of yours, if they finance.
Don't do that. I really screwed up and financed my house for the buyer. The buyer gave me a large downpayment with the remainding due in one year. They wouldn't pay it because of medical reasons. Let them get their own financing. I learned this the hard way.
seller financing is generally accomplished with the use of a contract called a land contract. The buyer offers to pay and the seller offers to accept a set amount of money over a set period of time. The amount of interest is negotiated at the front end. The monthly payment is then determined, and away you go. Advantages: in some cases, avoid the use of a broker. seller gets his price. bank closing costs may be avoided. seller can often get a higher interest rate than the going rate for mortgages. Buyer often puts up a smaller down payment. Buyer can often negotiate a longer payback.
Disadvantages: for seller- you assume the risk of a bad buyer, late payments, damages to property, default (most people who want a land contract are sub-prime credit risks and cannot get a conventional mortgage for that reason)
for the buyer- you have no equity until you pay off the note in full, some sellers can be horrible to do business with over time, seller may harrass over the way you keep the property (title remains in their name until you pay off in full) seller may sell the contract to a secondarybuyer, and you have no control over the paper. Land contracts offer some tax advantage to some sellers, as there can be a big tax hit if you sell a property that has appreciated significantly. The land contract sale is taxed over time, rather than as a lump sum.
If you are not familiar with the concept of a land contract, you should definately talk with an attorney and do your homework, at the very least before commiting to it. As an aside, I have sold three properties over the years on contracts. I have sold them seven times! I made a bucket of money through the process. When a buyer defaults, if the contract is properly structured, the property comes back to you, you keep everything you have gotten up to that point, and you can sell it again. The cashflow works. Of the three properties, only one was trashed by the buyer before default. While I lost over 25,000 in damages to that property, the market was good to me, and I sold it the next time around for almost 40K more that the first buyer contracted for. I also retained his downpayment of 10,000 and three years of monthly payments, making it a good deal for me. Understand, as a seller, that you have to assume you will get the property back one or more times before it is actually sold, and understand that your bookkeeping can be a bit burdensome. There are some great tax advantages to a contract sale, as well. You need to talk with an attorney and /or a tax advisor to fully appreciate the risks and benefits of this kind of transaction.
It is important that you assume that anyone looking for seller financing is not a good credit risk. Not knowing your precise situation, I would not call your buyer a liar about his credit rating, but he probably is lieing about it. Liars are not good risks when it comes to this kind of financing. I would much rather deal with someone who says flat out that they have nothing and their credit sucks. In general the most damage to contract houses is done by liars. Work with a buyer who is late on payments. Your compassion can be rewarded by loyalty in the future. On the other hand, when someone starts lying to you, see your attorney immediately, and break the contract. Write a good termination clause for the contract. Your attorney will help you. Do not sign over title, under any circumstances until the final payment is in the bank and has not bounced. Once you sign over title, the buyer becomes the owner of record, and can sell it out from under you. Then the only ones who make money are the attornies. Be open to the idea, but be very cautious, and take the advice of your attorney.
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