Six Seller-Financing Pointers
Finding a buyer for your property can be difficult at times. Finding a buyer who has all the credentials is even herder. Sometimes if a buyer wants to buy your home, but can't afford it they may ask you to finance part of the purchase for them in what called a 'carrying back loan'. It's your choice whether you accept or decline, however below are some tips on what you should be thinking about, when considering the offer.
The first thing you should do is ask yourself if you were your bank manager, how would you decide. You should look for documents that show the buyer is serious about buyer the house and their willingness to payback the debt. Checking the potential buyers employment and sources of income can also help you decide the course of action, as to can a credit report. Asking to see financial statement and alike from the buyer is also a good idea.
If you are leaning towards provide some finance, for the buyer, it is a wise idea to have a contingency in writing. The purchase contract should state the amount, interest rate and time-period of the seller financing and contain a section allowing you to endorse the buyers monetary circumstances before you advance with the loan.
Advice
Getting some extra advice is always recommended in these types of situations and it may be appropriate to call your accountant or attorney, especially as lending money to someone buying your home could affect your income taxes, as interest earned on the loan can be taxed as income. Also, your attorney should draw up any loan document.
When deciding how to stage the payments, you should set a short-term loan arrangement. A payback period of around the 5-year mark is usually the norm. If the loan is to bridge the difference until the buyer sells their home then the payback time will be lower than 5 years.
Securing A Loan
Securing the loan that you offer to the buyer is paramount to protecting yourself against future outcomes. Securing the loan to the property is normally what happens in carrying back loans, giving you the option, in the event of the buyer defaulting the loan, foreclosing and evicting them.
One final tip is the hire a servicer. You might be happy to offer a loan, however, you may not want all the paperwork that comes with it. A servicer company will carry out all major items such as calculating the principal amount, the interest and outstanding balance on the loan. They will also send payment coupons to the buyer, make deposits into your bank account and other services.
