What Sellers Need to Know
Keep these tips and realities handy if you’re considering acting as the bank and financing the sale of a home.
You Needn’t Necessarily Finance the Sale for Long
As the seller, you can, at any time, sell the promissory note to an investor (note buyer) or lender, to whom the buyer then sends the payments. This will in essence get you paid in full well before the maturity date of the loan. This is known as selling your note. It’s often best to get a 12-month track record of timely payments, known as “seasoning” and this can make your note more attractive to the note buyer. Lots of sellers think they will not have access to cash if they do owner financing but in fact, they can sell the note at any time and get cash. If there is no immediate need for cash then an added benefit is the interest collected via the monthly payments and steady income.
Be aware, however, that you will likely have to accept less than the full value of the note in order to sell it, thus reducing your return on the property. Promissory notes on properties typically sell for 65% to 90% of their face value, according to Amerinote Xchange, a company that specializes in secondary-market funding.1 By seasoning these notes for long periods of time will land the seller at face value or the higher 90% of the scale.
Make Seller Financing Part of Your Pitch to Sell the Property
Seller financing is relatively rare to find in today’s market so tell people you know and run a few ads offering “Seller Financing Available”.
When potential buyers view your home, provide more detail about the financing arrangements. Prepare an information sheet that describes the terms of the financing, along with a general explanation of what seller financing is since many buyers will be unfamiliar with it. You can use an amortization schedule calculator ( link to a FREE one https://www.amortization-calc.com/ ) not only to show the buyer the payment but you as the seller can calculate the interest received by holding the note.
Seek Out Tax Advice and Consider Loan-Servicing Help
Since seller-financed deals can pose tax complications, engage a financial planner or tax expert as part of your team for the sale. Also, unless you’re experienced and comfortable as a lender, consider hiring a loan-servicing company to collect monthly payments, issue statements, and carry out the other chores involved with managing a loan. This is not needed however and can take away from your monthly profit. Also, make sure the buyer is up to date on paying the property taxes, in the event that you do have to take the property back at some point, you do not want the surprise of a hefty delinquent tax bill that you end up having to pay. Remember the tax bill stays with the property, not the person that was buying the property. Making sure the taxes are paid and up to date can be a requirement of keeping the note in good standing, all the more reason to hire an attorney for these and all real estate transactions. When you do business with Helpful Homes all transactions are handled and overseen by a real estate attorney.
Help for Seller-Financed Deals
Both parties in a seller-financed deal should hire a real estate attorney or real estate agent to write and review the sales contract and promissory note, along with related tasks to get the deal to the closing table. Try to find professionals who are experienced with seller-financed home transactions—and experienced where you live, if possible, since some relevant regulations (such as those that govern balloon payments) do vary by jurisdiction and state. Helpful Homes operates in North Carolina and we stay informed on the laws and regulations that govern the world of seller financing. You can rest assured we will do things in a legal manner that protects all parties involved.
Professionals can also help the buyer and seller decide on the particular agreement that best suits them and the circumstances of the sale. There are many creative ways in which buyer and seller can structure A deal that ends up working for both sides.
The Bottom Line
As unusual and unfamiliar as it is to most people, seller financing can be a helpful option in challenging real estate markets. However, the arrangement triggers some special risks for buyers and sellers to be aware of and consider, and it’s wise to engage professional help to mitigate those and allow the process to run smoothly. Helpful Homes buys houses from sellers looking to sell their property and take advantage of the many benefits that owner financing offers. Are you considering selling your home in the TRIAD? If you want to know more or have additional questions about how this may work for you, give us a call today, we will be happy to talk with you about all of the in’s and out’s.