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Seller Finance

Frequesntly Asked Questions
  • In a nutshell, a seller finance sale is an agreement in which the seller agree-to sell the property to the buyer by structing a loan that the buyer will pay off over time
  • This agreement is very similar to getting a loan from a mortgage lender, except the seller and buyer can create and negotiate their own terms including price, monthly payment, and loan length, among other possible terms
  • There is no bank involved in the transaction and therefore the buyer, seller, and property do not need to qualify for traditional lending requirements
  • The seller can potentially obtain a higher offer price than a traditional offer
  • By accepting payments, the seller can create truly passive income
  • The seller can structure terms to best fit their financial and lifestyle goals o
  • Can minimize capital gains taxes and spread-out depreciation recapture over time
  • The transaction can close quicker and without financing contingencies o
  • The property does not need to qualify for traditional lending, can sell in “As-Is” condition o
  • NO dealing with the banks, YOU BECOME THE BANK!
  • The seller does not receive the purchase price of their home in one lump sum payment
  • May not be a good fit for a seller looking to pay off large sums of debt
  • May not be a good fit for a seller looking to buy a new property in cash
  • Does not work with 1031 exchanges
  • Unless a short term is negotiated, an older seller may not see all of the equity from the sale in their lifetime. However, payments can go to the estate or heirs of the note
  • The hassle factor of managing monthly payments if a loan servicer company is not used
  • So long as the property is in good condition, this is good news for the seller
  • After 60 days of nonpayment (depending on the agreement) the deed to the property will be transferred back to the seller
    • It is important to draft the note so that foreclosure is not required, and the deed transfer is seamless
  • In other words, the seller will retain all previous payments from the buyer, and regain complete ownership and control of the property
  • The sellers can resell the property, potentially at a higher price if the market has improved
  • Accidents happen – including home fires and natural disasters
  • The buyer is required to carry home insurance on the property for this very
    reason
  • As the seller, until the note is paid off, you are listed as an additionally insured party
  • If something happens to the property, your interests are fully protected by the insurance policy
  • In short yes, you can!
  • One option is that the buyer can provide a down payment large enough to pay off the seller’s existing mortgage
  • Another option is allowing the buyer to assume the existing mortgage note
    • Mortgage note assumptions presents additional benefits and risks to the seller outside of seller finance that should be explored before considering this option
  • Ownership of the home operates in the same way as a traditional transaction
  • The buyer has full ownership of the home
  • The financier (the seller) will retain a primary lien on the home
  • There is not necessarily a ‘typical’ set of seller finance terms
  • If the seller is looking to make a good return, they may negotiate a higher purchase price
  • If the seller is looking for a fast return, they can negotiate a shorter term on the transaction
  • Alternatively, a buyer will often focus on negotiating a reasonable monthly payment