I am a newbie working on 2nd SFH deal, which will become a rental. I would like to put a request for seller financing in letter of intent to purchase, but don't really understand how it works. Who does the paperwork to set up the note? Would the seller use an attorney, accountant, etc.? Or am I just sending some lady a check for 30 years? I would like a firmer understanding--can anyone advise?
Our first deal went so well and we have excellent tenants, thanks in large part to BP and all the great comments and suggestions we received! Thank you!
I own three rental properties, two with lenders, and one for cash, and am beginning to see that working with motivated sellers who are willing to finance the deal is an advantage.
First of all, you have to realize that there is NO LOAN involved. You are NOT borrowing money from them, and they are NOT loaning you money. You are simply buying their property with "terms". Typically, you give them some cash up front and make payments to them. Can be interest only with a lump sum later, or amortized. It can even be "principle only" payments. The payback period can be 10, 15, 20, or 30 years. Whatever works for them. No pissant lenders to rain on your parade. No lender fees...etc.
Another factor is the sellers current mortgage. What is the current balance? Do they own it free and clear? If there is an existing loan on the property, the lender will have the 1st position. If they are selling for more than they paid, they can do a "wraparound" mortgage where they take the payments they receive from you, say $800, then keep making payments on their mortgage, say $500.
Most, not all, sellers today are selling at a loss, so their mortgage payments are higher than the payments you'd be making to them. There are also "due on sale" clauses to deal with from any existing mortgage holder. This means, technically, if the property is sold, the existing mortgage must be paid off.
Don't forget "subject to" deals, and "Lease options".
At any rate, you need to get a RE attorney or escrow company to handle the paper work.
Lease options are the way to go. Find a property that needs a little work and get the lease payments & price as low as possible. Find someone who wants to buy it & live in it & lease to them at a higher amount & sell at a higher price. Be sure to get a good option fee and you have the makings of a great deal with very little risk or money out of pocket.
I have sold properties where I held a note. The actual note is set up by the title company and I use a mortgage servicing company to handle the payments as well as escrow for taxes and insurance. The servicing company handles tax reporting as well.
This is the website for the servicing company that I use. They give a pretty description of how it works:
It is a flat fee. It can be billed to the buyer or seller. The monthly servicing fee for this company is $14.95. I believe it varies based on level of service involved.
Hi, I feel that I am in debt to you for bring this information to surface! I have searched for a servicer of privatley held notes and never saw this company. I have visited the web site and it appears to be fantastic! I did the very same thing in my mortgage company for others, but with guaranteed payments, advancing the payment to the holder and assuming the deal if it went bad. But, al in all, this is great news, Thanks! I will spread the word.
The greatest fear for any buyer is getting messed over by some old property churner, who does lease/options and has many ways to ensure the deal does not work after getting the down payment and months of payments, only to take it back and look for the next poor guy to take advantage of. This is unconscionable conduct! In fact, I am preparing doc to file suit against a property churner for a family who recently lost their home. The case is beyound just churning, from failure to give notice, unlawful entry, theft and wrongful sale...anyway, that's something else.
If anyone needs assistance or wants some infromation of L/O, installment contracts or seller financed, feel free to contact me, it free! Thye are great ways to market a property, make additional profits and keep taxes lower for the seller and a way for buyers to really buy a home and establish their credit.
Thanks again for your post, I'm excited to have found this site. I will get back on this later after I talk to them. Hey, and it looks like servicing is only $14.95 a month, that's a deal!
Bill
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