Points on Seller Financed Loans

6 Replies

Good Morning, 

I have deal I've been working on for the past 2 months. When we first acquired the deal the seller's price was simply too high and we got very little interest or feedback from buyers. Now that we have successfully talked him down, cash offers are coming in ranging from 60K-92K. The highest offer of 92K is a seller finance. The first problem is the seller only wants to give up 3%, which would be ok for me as I am willing to take 1.5% just to close the deal at this point. However, the second problem is the buyer's agent will not agree to anything less than 3%. Being new to seller financing I have a few questions I am hoping to get your advice on: 

1.) Can you charge points on seller finance deal?

2.) Seller wants to set terms for a 12 month payoff. What would be considered a fair interest rate and monthly payment? Note: Buyer has agreed to 20% down payment

3.) Seller wants to ensure he will not be liable for debt should buyer default on paying contractors or third parties etc (i.e: mechanics liens). Is it possible to include verbiage in contract that will preclude seller from such liens should buyer also default on the loan and house is foreclosed upon and returned to seller? 

4.) I can probably answer this myself....but am I responsible for performing due diligence on buyer to determine their ability to pay?  

Thank you in advance for your counsel!

If you are selling to an owner occupant then you need to check on Dodd Frank compliance.

Thank you @Bob E. and @Brian Gibbons

Brian I read through your blog and somewhat have an understanding. Thank you it was extremely helpful. I will definitely consult an attorney and source a RMLO in my area. What stuck out the most to me is the elimination of ballon payments. Is it my understanding that according to the Dodd Frank law seller finance loans cannot have a ballon payment at the end of the term at all?

@Moshay Laren Not a lawyer or licensed loan person so not legal advise but here is ny understanding.

If an individual (not a corp or LLC) does one transaction in a 12 month period they can getaway without having to submit to all the DF issues.

If the borrower is a business LLC etc. then it is not a consumer loans and DF does not apply.

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