Seller/Owner financing - The Basics

8 Replies

Howdy BP folks!

I did some research on the process of owner financing and found some good info but left me confused and with more questions.  I'm hoping folks here can answer a few questions.

I am currently in negotiation with a home owner for a SFH in Sacramento, CA. She currently rents it out and owns it free and clear but is a tired landlord. If we were to agree to a price, do 0 down with the purchase price at 5% for 5 years with a balloon payment at the end, what are the basic steps I need to take?

  1. have a real estate attorney put together a contract for the transaction and note? or contracts from places like legal zoom good enough?
  2. Enlist a Title company to do a title search and transfer of title?
  3. Escrow company needed?  If we go $0 down, do we need an escrow service?
  4. Anything else I'm missing?

This would be my first seller-financed transaction if we come to an agreement.  I know these are basic questions but couldn't find simple answers to them and the process.

If you have recommendations on the services needed above, I'm all ears!

Thanks!

You will need an attorney, maybe 2.  I would suggest you have your attorney draft a real estate contract with the purchase price and terms (conditions including inspection, how attorney fees will be split, etc).  This will be cheap.

You may need escrow service even with $0--depends on what the seller requires.

If everything checks out then have the other attorney (seller's attorney) draft the note and deed, etc.  Not cheap but absolutely required.  

The first attorney can review the documents and will help you through the closing with title company, etc.  

Why don't you go through the normal process for hiring a realtor, escrow officer, and loan agent?

@John J.   I am the buyer of the house.  I prefer that the seller does not go through the traditional process in order to save costs, fees and commissions and pass those savings on to me through a lower purchase price.  I can also negotiate terms better directly with the seller.  These are some of the best positives for a seller financing strategy.

@Paul Choi contact a title company, I use first American title and they can put together the purchase contract for you that states your loan terms and monthly payments. That is all you need, you do not need 2 attorneys to do one job, you do not need a loan officer or real estate agent since that would most likely kill your deal.

I agree with Sean. Use a title company and in Michigan your form of purchase is called a land contract. it means that the Seller holds the deed until the payments are completed. Title company has standard land contract forms. But standard does not mean that it fits your particular situation. An attorney review would be wise. You want language on the contract preventing the seller from mortgaging the property, language allowing you to actually use the property while it is under land contract.  Stuff we don't normally think of. Also, do not forget to have seller pay for title insurance. Depending on the sale price it should cost less than a $1,000 (property under $100k). Without the Standard Exceptions. Good Luck.       

Originally posted by @Paul Choi :

@John J.  I am the buyer of the house.  I prefer that the seller does not go through the traditional process in order to save costs, fees and commissions and pass those savings on to me through a lower purchase price.  I can also negotiate terms better directly with the seller.  These are some of the best positives for a seller financing strategy.

 Hi Paul,

I see.  If you can find good deal, that would be awesome.

Why would the seller give you a good deal, instead of selling to his or her relatives or friends?

What are the house price, square feet, bedrooms and bathrooms?

What do the total revenues and expenses like? 

Does the seller still hold the title for 5 years until you pay off to transfer the title to you? 

What if the seller dies in year 4, what will happen to the deal?

John,

Get that thang under contract first. Pick a title company. Pay some fees. Set up a notary signing. Ok you go. Just make sure you collect the lease agreements and/or decide what you're going to do with them. Many options for you.

I have purchased via owner finance

I have also sold via owner finance

You are 100% correct no need to get a real estate huge waste of your money as you said 

Get a real estate Atty YOU pay them. Do NOT let the seller pay.  The Atty will then be your representative.  

The Atty will take care of getting the title company, creating the contract etc

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