Owner finance closing costs?

Question

Do you charge orignation or other fees for selling via owner finance?  This would be on a 30 year fixed note,  contract for deed.  Sales price $70K, $10K down, 7.5% fixed rate.

Also, any tips on further setting up and structuring the note to make it more valuable for eventual resale (the note).

Marc Faulkner · Answer

Jon,
     Most investors do not charge origination or other "garbage" fees when using seller financing to move properties.  Some smart investors do require the buyer to pay for an appraisal and keep this on file to establish the property value for potential note buyers.  
     As for tips on setting up the note to make it more valuable to sell after creation:  
1. Charge a rate that is a couple of points higher than the market rate.  You are offering financing here, as long as the payment is still affordable, your buyers will not be balking at the rates you are offering. 
2.  I also recmmend that you get another $4,000 down or carry back two mortgages; one in the first position for $56,000 and a second for $4,000 to keep the LTV on the first at no more than 80%.  This increases the security for investors.  You sell off the first and keep the second for cash flow.  
3. I also suggest that you pull credit and that you do not work with anyone that has less than a 600 FICO.  
4. You should also record everything and make copies off all checks collected and save your deposit slipps as proof of payment history.  
5. Another thing you should do is structure the note with a 5 to 7 year balloon-this provides flexability should something go wrong!
Setting up the note in this way will greatly increase the number of investors out there that would be willing to buy it and will allow you to create competition around the note sale when the time comes.  I hope this helps.
Live!