Please Help Understand/Analyze Seller Financing Offer

Dallas, Texas
Buying & Selling Real Estate
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Please Help Understand/Analyze Seller Financing Offer

Brandon Bass
North TX · Member since 2012 · 6 posts · 1 vote

I have one of my rental properties listed for sale. I received an offer to sell it for full price with seller financing. I never really considered going the seller financing route, and know little about it, but it does seem to offer some good benefits to all involved.

Here are the terms of their offer:

415k Purchase Price (full price), 20% down

Finance the remaining 332k at 8% amortized over 30 yrs with a 3 yr balloon

Here are my questions:

1. Are the seller financing terms being offered good given the present day market? I feel like 8% is around what someone with good credit could get on a 30 yr fixed loan these days. Is it common to charge a similar rate or should I being charging more/less? 

2. Do I just have to take a leap of faith that the buyer will pay as outlined and not walk away at some point? For proof of creditworthiness the buyer is only offering current bank statements and proof of having paid off a seller financed loan before. The buyer's Realtor said she's done several such deals with this person and that because he's very private and doesn't like banks is why he prefers these types of deals. I don't think I can get any kind of credit check out of him. Should I try to get more down payment money to give myself more protection?

3. The buyer intends to occupy the property. I will only do this one seller financing transaction in a 12 month period. Does Dodd-Frank apply and I need a mortgage loan officer, or does it not? I've read several articles on Dodd-Frank and SAFE act and I'm still confused about when it applies.

Thanks for any help you can give.

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Joseph Gozlan
Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
3y

@Brandon Bass A few things to ask/consider:

1) Why do they ask for seller financing? Some people are not bankable just because they are a business owner and conventional lenders don't really know how to comprehend complicated tax returns. Others, on the other hand, are not bankable for a good reason! Figure out the reason.

2) Texas is a homestead state. If they move in, eviction can be more challenging than if they were buying it as an investment.

3) Like was mentioned before, if they can't get a conventional loan today at 8% what makes them think they will be able to get one in 3 years?

4) with a 20% down, conventional loan for someone with good credit would be in the 6.5%-7%  (which makes their 8% offer another flag)

5) No matter what you do, make sure it's YOUR attorney that writes up the documents for the note and VERIFY the note got recorded by the title company after closing.

Good Luck!

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  • Mason Hickman
    Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
    3y

    @Brandon Bass

    Confirming you don’t have a loan on the property because that could trigger a due on sale clause. 
    You will essentially be the bank so you should get comfortable with this guy you’re going to lend to. Learn what his exit strategy is within the 3 years. Run an application on him (similar to what you would with a tenant).

    With 20% down, he should be able to get conventional financing on a primary home so why does he want the owner financing? It’s because he is likely un-lendable. Ask the agent the other houses she has done for him and pull the registry information to see if it adds up. 
    Dig deeper! It isn’t because “he’s a private guy”

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  • Brandon Bass
    OP
    North TX · Member since 2012 · 6 posts · 1 vote
    3y

    Thanks for the input @Mason Hickman. I do have a loan but I will either pay it off at closing or risk them calling in the note and keep some money available if they do. 

    Good point about the exit strategy. I will definitely ask that one when I talk to him later today. He won’t let me run his credit so I think I should try to get a bigger down payment to provide more security to me. 

    Does anyone have any opinion regarding the short ballon time (is it legal?) and if Dodd-Frank applies?

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  • Joseph Gozlan
    Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
    3y

    @Brandon Bass A few things to ask/consider:

    1) Why do they ask for seller financing? Some people are not bankable just because they are a business owner and conventional lenders don't really know how to comprehend complicated tax returns. Others, on the other hand, are not bankable for a good reason! Figure out the reason.

    2) Texas is a homestead state. If they move in, eviction can be more challenging than if they were buying it as an investment.

    3) Like was mentioned before, if they can't get a conventional loan today at 8% what makes them think they will be able to get one in 3 years?

    4) with a 20% down, conventional loan for someone with good credit would be in the 6.5%-7%  (which makes their 8% offer another flag)

    5) No matter what you do, make sure it's YOUR attorney that writes up the documents for the note and VERIFY the note got recorded by the title company after closing.

    Good Luck!

    1Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    3y

    @Brandon Bass

    Seller Financing is a real estate agreement in which the seller handles the mortgage process instead of a financial institution. Instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the seller. Owner financing is another name for seller financing. It is also called a purchase-money mortgage.

    Buyers attracted to seller financing are often those finding it difficult to get a conventional loan, perhaps due to poor credit. Unlike a bank mortgage, seller financing typically involves few or no closing costs or and may not require an appraisal. Sellers are often more flexible than a bank in the amount of down payment. Also, the seller-financing process is much faster, often settling within a week

    For sellers, financing the buyer’s mortgage can make it much easier to sell a house. During a down real estate market, and when credit is tight, buyers may prefer seller financing. Moreover, sellers can expect to get a premium for offering to finance, meaning they are more likely to get their asking price in a buyer’s market.

    Seller financing rises and falls in popularity along with the overall tightness of the credit market. During times when banks are risk-averse and reluctant to lend money to any but the most creditworthy borrowers, seller financing can make it possible for many more people to buy homes. Seller financing may also make it easier to sell a home. Conversely, when the credit markets are loose, and banks are enthusiastically lending money, seller financing has less appeal.

    Read this article for more https://www.investopedia.com/t...

    Good luck!

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