everything about seller finance

4 Replies

I am a newbie and need a point in the right direction.

I am interested in learning about seller financing

IS there like a seller financing 101 course somewhere on their site.

And

How do you take a seller financing opportunity and make it into a wholesale

I’m sorry if my question is way too broad yet I am a newbie so I might not know what I am talking about

Tina, you are in the right place. First piece of advice: keep reading these forums and posts. Second piece of advice: interact in the discussions as you will get very quick feedback. Third piece: check out Brandon Turner's new book, Investing with no and low money down, sold on this site. In time, these resources will definitely point you in the right direction.

I would focus on finding cash deals(and cash buyers) first.  Maybe initially ask if a seller would consider offering seller financing, but I would have the contract for a cash offer.

Once you have a few deals under your belt you might pursue seller financing as a niche strategy.  Even though Dodd-Frank won't apply to your investor buyers, you still will want to make sure the buyers can close the deal.

Here is how having a deal for cash can be a better starting point(numbers are purely fictional).  

Say you have a contract lined up for a property for for 50K cash and you want 2.5K for the assignment.  You have a buyer who has 12.5K and would be willing to pay 55K.  You can more easily go back to the seller and say you can get 10K now and 47.5K on payments.  You created value for the seller by getting them an extra 2.5K and you created value for the buyer by letting them keep 40K in cash freed up.

It doesn't work as well if you have the property tied up under a 55K - seller financing contract and you have a cash buyer who will only pay 50K(net to seller) - which isn't a bad deal, but the seller can definitely walk away and likely won't be happy even if they agree to the deal.

Geeeez!

Tina, first off, your end buyers as they were referred to, a buyer who intends to live in a property IS a Dodd Frank matter, you must then see what exceptions MAY apply, as a dealer, YOU as a LENDER are under different requirements with seller financing.

There is no seller financing book 101, on BP, none are technical in nature to the underwriting, structure, assessment of security collateral, servicing or any other aspect of seller financing.

Everything on the internet older than a year is out dated due to federal laws enacted as to residential lending, everything! Learning out dated information can get you in trouble.

Another push on the legal side deals with "predatory lending" that can apply to a borrower or a lender, the party that initiates the seller financing into any deal.

To understand seller financing you must understand conventional financing, the key of successful underwriting and originating a seller financed transactions is to lead a borrower into conventional financing so that the seller financed obligation can ultimately be paid off in the future.

Otherwise, the seller financing would have to be fully amortized and paid off to the seller over time.

To avoid predatory issues, being an "investor" on either side of a transaction, you need to understand conventional lending accepted practices, just because a seller is financing does not give them any right or privilege to do just anything someone can dream up.

Before you can understand RE financing, you need to master the principles of real estate, 90% of those spouting off about financing don't even have a command of RE knowledge, much less financing.

There are many strategies that can be done legally with seller financing. While it won't meet the needs of most sellers, it certainly has a place and should be understood, but the applications are almost endless as to how financing might be used. The requirement is to ensure the financing is compliant and to do that you need to understand not just business law and RE law, but also financing laws.

And, there is a difference in equity loans (seller financed) and cash advanced loans, to begin understanding those differences you need to begin with the nature or installment transactions under the Uniform Commercial Code (UCC).

If anyone says there is a book that teaches all you need to know for seller financing, they are either misinformed or they just lie. There are 4 basic phases to seller financing, origination, underwriting, legal/compliance and servicing, no book exists on the face of the earth that teaches all of these aspects in depth to any professional standard. Dodd-Frank is just a sliver of the log that must be chopped.

As of this time, you need a mortgage originator, a RMLO and a local attorney to review the note and security agreement as that can be required under state laws. Some states consider drafting a note that you are not a principal party to being the practice of law.

Those who obtain a RMLO license are required to take a course, about 20 hours and a test as difficult as that for a real estate agent, not that hard, and there is no specific training given in matters of seller financing! So, for now, that means having an attorney who has experience. Underwriting is practically non-existent as to the needs of a seller and borrower, RMLOs will be looking at conventional guidelines and the new regulations are designed around conventional underwriting as well.

So, your goal shouldn't be so much as to how to do seller financing but when seller financing is useful and might be employed, leave the how to, to the financing and legal folks. :)    

@Tina Ferrier  

I'll base this advice on that this property would be sold to a landlord who will not live in it but rent the house.

Personally I'd be concerned with appearing to broker a loan (the seller's financing) so I'd structure the deal like:  find a buyer, ask the buyer to sign a non-compete and non-circumvent (standard practice for most wholesalers) then ask the buyer to sign a fee agreement of your markup.  This clearly says who will pay your fee at the closing table, not the seller with their financing which Dodd Frank is not inplay because the buyer is a landlord and won't live in the property.  You are cleanly out of the deal after closing just getting a fee from the buyer.

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