How to Offer Seller Financing on Your Home

You can provide seller financing on your home in a number of ways. The most important thing to realize is that by providing partial or full financing, you will not be receiving some or all of the proceeds from the sale of your home until the buyers' loan to you is paid off.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Calculators
• Real Estate Attorneys
• Tax Consultants
• Calculators

If you still have an existing mortgage on your property:

1. Agree to a purchase price with the buyers.

2. Identify the loan balance on the current loan.

3. Identify how much you are willing to finance. Are you going to finance the entire loan with only a down payment, or are you just financing a small portion to fill the gap between the buyers' down payment and amount of their new loan (possibly 5 or 10 percent).

4. Enlist the aid of an attorney or escrow officer to handle the paperwork for the wraparound.

5. Continue to make your payments on your original loan.

If you own your home free and clear:

6. Agree with the buyers on a purchase price acceptable to both parties.

7. Make sure the buyers are prequalified.

8. Ask the buyers for their permission to speak with their lender. Ask the lender what type of credit rating the buyers have and what interest rate they would get if the lender was giving the buyers a loan. Typically a seller-financed interest rate should be slightly above the market rate. (Sellers are not in the business of financing, and if the buyers could go out and get a loan from a normal lender, they would. The seller should be compensated.)

9. Agree with the buyers on an interest rate and length of loan.

10. Compute the mortgage payments. Several computer programs will do this for you as well as give you a running total of the amount of interest and principle paid and the remaining balance. If you don't have access to a computer, ask the lender for a printout, or ask your financial institution to do it.

11. Sign a formal agreement as to the price, loan amount, interest rate and terms.

12. Open an escrow with a title company or hire a real estate attorney to handle the paperwork.

Tips & Warnings

• Carrying back a small loan will allow you to get most of the proceeds (cash) from the sale of your home. When you open escrow or work with an attorney, you will have to let the person who's handling the transaction know that there is a seller carry-back, and the amount and terms. The person handling the transaction will prepare the necessary deed of trust and note.
• Carrying back the entire loan amount will require a wraparound mortgage. This will allow you as the seller to maintain the original loan and payment, and receive a payment from the buyer covering a larger loan amount and payment. Your obligation as the seller is to continue making payments on your existing loan.
• If the buyers fail to pay their payments as agreed to, you may have to foreclose.

[wtessler]

on 6/26/2009 Bear in mind the term over which you will be paid. Just because conventional mortgages generally run for 30 years doesn't mean that's how long you have to wait for your money. Many seller financed notes have a 30 year amortization schedule, but generally call for a balloon payment of all remaining pricipal after 3 to 5 years.

[Arles]

on 12/21/2008 A competent “Real Estate Agent” is much more adapt at doing the paper work on Seller Financing than an Attorney or a Title Company, although “No” Seller Financing sale should be done without Closing at a Title Company.

[NoteWorld]

on 5/7/2008 If you are going to enter into a transaction using Seller Financing and you still have an underlying lien there is much more to worry about than the 5 steps mention above.

First and foremost most (if not all) modern mortgages or deeds of trust have a "due-on-sale" provision that gives the lender the right to request the entire outstanding principle if any portion of the property is sold (even if it is just 1%)... this is a huge risk, but it is often not a transaction killer.

There are several other issues that arise with this type of transaction that are 100% addressable with the use of a reputable third party payment servicing company like NoteWorld. Issues like missappropriation of funds, accurate accounting information, original document management, and so many more check out the website at http://www.noteworld.com for more information.

Seller Financing is a great tool to u

on 6/30/2006 You don't have to wait until the buyer's loan to you is paid off to receive all the proceeds from the sale of your home. Some sellers are opting to do a Simultaneous Closing, whereby the seller financed mortgage note is sold for cash on closing to a note investor.

on 11/22/2005 I disagree with this idea. Most due on sale clauses are triggered by transfer of any part of your interest. Even worse, if a suit is filed regarding the property or a lis pendens is filed, you end up in the public records as a defendant. If an uninsured judgment is obtained, you'll have to pay a share of it. If you have to foreclose your seller loan, you're again on record as a defendant.