Skip to content
Private Lending & Conventional Mortgage Advice

User Stats

33
Posts
11
Votes
Brandon Hunsaker
Pro Member
  • orem, UT
11
Votes |
33
Posts

Does Seller Financing Have Any Impact on My Personal Credit

Brandon Hunsaker
Pro Member
  • orem, UT
Posted Sep 14 2023, 14:08

I househacked a home for the last two years, and it is now a rental. I am selling it with seller financing because I recently transitioned to self employed and not able to get a HELOC for it since I've been self employed for less than 2 years but would like to be able to access the equity in my home to help build my own business. I have not paid off the mortgage yet so I understand by having a buyer assume my mortgage that the due on sale clause could be called. To help protect me in that circumstance I am having my realtor write a clause that if the due on sale clause in invoked then the seller financed loan balloons immediately and the buyer is responsible to refinance or I can foreclose on the buyer to help insulate myself in the event of the due on sale clause being invoked. In addition to this risk are there any other risks to my personal credit or being able to obtain a future mortgage or loan through my personal credit that could be impacted by extending seller financing to a buyer?

User Stats

1,567
Posts
1,297
Votes
Doug Smith
  • Lender
  • Tampa, FL
1,297
Votes |
1,567
Posts
Doug Smith
  • Lender
  • Tampa, FL
Replied Sep 14 2023, 14:11

Only if 1) the seller has a licensed servicing company service it or 2) you default, they sue you, and get a judgement against you. 

User Stats

4,200
Posts
4,093
Votes
Mike Hern
Pro Member
  • Investor
  • Scottsdale Austin Tuktoyaktuk
4,093
Votes |
4,200
Posts
Mike Hern
Pro Member
  • Investor
  • Scottsdale Austin Tuktoyaktuk
Replied Sep 14 2023, 17:26
Quote from @Brandon Hunsaker:

I househacked a home for the last two years, and it is now a rental. I am selling it with seller financing because I recently transitioned to self employed and not able to get a HELOC for it since I've been self employed for less than 2 years but would like to be able to access the equity in my home to help build my own business. I have not paid off the mortgage yet so I understand by having a buyer assume my mortgage that the due on sale clause could be called. To help protect me in that circumstance I am having my realtor write a clause that if the due on sale clause in invoked then the seller financed loan balloons immediately and the buyer is responsible to refinance or I can foreclose on the buyer to help insulate myself in the event of the due on sale clause being invoked. In addition to this risk are there any other risks to my personal credit or being able to obtain a future mortgage or loan through my personal credit that could be impacted by extending seller financing to a buyer?

The mortagage will show up as a debt payment on your Debt to Income ratio until it's paid off. That may affect your ability to buy another house. Make sure the payment gets paid even if your buyer can't make the payment. It's still on your credit report until it gets paid off. Talk with a mortgage broker.

Make sure to report the sale on your tax return so you get the tax benefit of living in the house for two of the last 5 years. Talk to a CPA.

What is unclear is your usage of "assume". That actually means getting bank approval to take over where you left off on the loan. They have to qualify for the loan. I don't think that is what we're talking about here, though.

If you mean sell on Subject To, that is something totaly different. 
If you mean sell on a Wrap, that is closer to what you are describing.
But either way, your name is no longer on title and you'd have to foreclose to get the property back if they stopped paying.

On seller finance, the title stays in your name, the buyer has a contract with you, they make payments to you and when they satisfy the agreement, title transfers to them.
You can do a Lease Option and protect yourself better.

 You need to change the insurance depending on what you are doing. Ask your insurance agent what they want it changed to.

You have a mortgage so once title changes, the lender can, but doesn't have to call the loan due. Make sure you have the ability to foreclose if the buyer stops making payments. 


BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

2,830
Posts
2,280
Votes
Caroline Gerardo
  • Lender
  • Laguna Niguel, CA
2,280
Votes |
2,830
Posts
Caroline Gerardo
  • Lender
  • Laguna Niguel, CA
Replied Sep 14 2023, 18:48

You take on 110% of all the risk. Late payments show on you. Foreclosing will take 24 months in some states and you may get back a trashed property. Foreclosing costs huge bucks- attorney/hearings/timelines/nightmares= $90000.00 The loan shows in your Debt to Income ratio when you go for a auto loan, credit card or mortgage. They cannot "assume your mortgage" unless is a VA and that ties your eligibility until paid off.

Some rare loans are assumable with many caveats ins outs and difficult rules to meet.