Benefits of Seller Financing
Posted by eightyeightinc on January 31, 2008
There are certain advantages to offering terms…
- The selling price is rarely negotiable
- You’ll get immediate action on your listings
- You’ll get more offers on you listings
- There are thousands of buyers that want to buy on terms
What do you do so everything is legal and the bank won’t object? Use a Contract of Sale. The contract protects the seller’s interest, the buyer’s interests, and can easily get the buyer out of the property if the buyer defaults on payments.
What happens to the seller’s payments? That payment stays in place for the length of the contract. This is the payment that is made to the underlying lender each and every month from the buyer’s payment.
How long should the contract be for? You can do it for as long as you want. You can do as little as 1 year and as much as 30 years. You are in control.
What type of loans can I do? You have no limits on the type of loan that you can do. You could do interest only, adjustable rate, negative amortized, full amortized, arm loans with a balloon payment. Just to name a few. I suggest you mirror the type of loan that you already have. If it adjusts, make the new loan adjust also.
How do you handle the monthly payments so all parties are fully protected? A contract service company will handle it. They take the buyers payment and then disperse the funds to the appropriate parties. Underlining mortgage, seller, property taxes, and insurance. They charge $100 set up fee, and $14 monthly fee.
Why would you use a Contract service company? First of all, they hold all the original documents. They send a monthly statement to both parties, which shows a current update of all balances. A late notice is automatically sent out and a late fee assessed if an account becomes delinquent. The seller also receives a copy of this late notice.You don’t want the seller to get the payment directly from the buyer because they could stop paying the underlying mortgage. You also don’t want the buyer paying the underlying mortgage directly because you wouldn’t know if the buyer is making the payments. The contract service company also collects monthly reserves for property tax and insurance. They can also directly deposit your monthly payments into your account. What kind of protection does the buyer have? The contract service company protects the buyer from the seller pocketing the monthly payments and not paying the underlying mortgage. The contract specifies that the seller cannot encumber the property any further nor use the property as collateral for any type of loan. Although the contract itself is not recorded, a Memorandum of the contract is recorded. This puts a “cloud” on the title and it’s enough to stop the seller from doing anything to the title. What about homeowners insurance? The seller insurance stays in place. This insures that there is adequate insurance on the property at all times. The contract service company collects the monthly insurance payments then sends an annual payment to the insurance company. What about Property taxes? The property taxes are handled the same way as the insurance. The contract service company collects monthly payments and pays the taxes in November. Who closes the deals? The title company closes the deal just like they would in a conventional deal. The title company also has a real estate lawyer to make sure everything is legal and protects all parties involved. How much time does it take to close a seller finance deal? Just a few days. The reason why conventional deals take so long is because of the bank. Since you are the bank you can have everything read in just a few days! What happens if the buyers stop paying the mortgage? The contract service company first sends them a late payment notice if they have not received the payment from the buyer on the due date. A late payment is assessed. The contract service company sends a demand notice by certified mail fifteen days after the late notice has been sent. This is where the deed is recorded back to the seller and the buyer is now just a tenant. They have lost the house and the eviction process begins to get them out. This is why we want good buyers that will put money down to avoid this from happening. It would be a good idea to keep 2 months of payments in a reserve account just incase this was to happen. Now you would be responsible for the mortgage payments until you can get another buyer in the house.
For All Your Utah Real Estate Needs Contact
The Bronson Barber TEAM
801-712-1607
bronsonbarber@gmail.com
