Q. Why should I finance a buyer for one of my properties when they very well may be able to obtain their own financing?

A. Just like the home builder who maintains a lending office in one of their new home sub-divisions, offering a turn key financing program to some of your prospective property buyers allows you to exert a whole lot more control over the entire marketing, Selling, and financing process.

If a buyer likes one of your homes, then you have the ability to "cut" your deal with that buyer for the home right there on the spot rather than having the buyer still have to seek financing on their own.

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Q. What if I agree to finance the sale of my home to a buyer hoping that I can then sell my "paper" for immediate cash and for one reason or another the sale of the "paper" falls through, am I stuck having to finance the sale?

A. It is wise to insert what is commonly called a contingency or “weasel” clause into any sales agreement you reach with you buyer(s) that will state  in essence that if you are unable to convert the Seller finance “paper” into cash for an amount acceptable to you, then the sales agreement between parties can be considered null and void.

In conjunction with your agreeing to finance the sale of your home to a prospective buyer, you are gathering information and documentation from those potential buyers to confirm with a competent note funder what can be accomplished in the event you do go forward with the sale and finance the buyer. This is called “pre-flighting” a potential deal.

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Q. Are there cost tradeoffs for me to offer my own financing to potential buyers?

A. Sure there are, however in many cases there is little additional expense to your buyer. First off there is No application fee, there are No points for you or the buyer to pay, there is No (PMI) Private Mortgage Insurance premium, there are No escrow impound accounts for taxes or insurance to be collected monthly or the additional funds needed from the buyer to “jump start” these accounts, so their down payment funds all goes towards the purchase price. There are also No other so called lender “junk fees” typically involved for loan origination, underwriting fee, warehouse fee, document preparation fee, etc.

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Q. Why is the interest rate I finance my buyers at on the Seller financing higher than prevailing mortgage market rates?

A. It doesn't have to be, you can charge whatever interest rate you wish. However if your goal is to be able to create a very marketable Seller financed note that can be easily converted into cash, providing you with almost instant liquidity along with a minimal discount from the notes outstanding principal balance, then the interest rate you must charge your borrowers on the financing has to be more in line with the non-conforming "sub prime" lending mortgage marketplace.

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Q. Can I inflate my property sales price?

A. One can and should receive top "retail" dollar for their property when it is sold and Seller financing is readily offered. Remember you are selling a financing program to potential buyers who are mostly concerned with these proverbial issues; How much do we put down? And How much will it cost us per month? – However if you intend to sell your Seller financed note then the property being sold will have to be formally appraised to support the sales price, comparable sales will have to justify its value, and it cannot be inflated, otherwise the value of the seller financed paper you take back will be considered  "flawed". When a debtor owes more in debt against a property than its actual value, a negative perception of risk takes over surrounding that debtors continue commitment to the property and their ability to continue to make payments.

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Q. What type of credit requirements are allowed for potential buyers?

A. All types can be financed from buyers with credit scores in the mid 550 range on up. If you goal is to immediately convert or sell off your owner financed "paper" then the proposed buyers will have to display an overall reasonably strong credit profile, and credit scores around the 600 +/- FICO or BEACON scoring levels, have stable employment, and no recent major credit blemishes.

If you have the ability to sell your property to a lesser credit buyer, and then age or "season" the mortgage by collecting payments on it for a period of time, where you can later on document the timeliness of the monthly payments, then you can take on more potential buyer's with different degrees of credit difficulty.

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Q. What is the minimum amount of cash required to be put down by a potential buyer?

A. We generally like to see a minimum of 5% of the properties purchase price put down in cash towards its purchase. With less cash down, the seasoning or collection of several payments can be an offsetting positive factor.

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Q. What type of paperwork is involved in finding out if my potential buyers are suitable for me to be able to convert my Seller financed "paper" into cash?  

A. Basic information or some sort of a credit application on the prospective buyers, the ability to investigate their credit background, a copy of a recent pay stub or two along with a copy of their W-2 forms from their employer, and a simple outline of what they have agreed to purchase the home for and how much they can put down in cash.

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