Seller Financing Advice & Feedback

[Tara Montgomery]

Hi I am considering offering seller financing for a property and want to get ideas on terms to offer and a general experience that any bigger pockets members had as this would be my first time offering this. My initial idea was 10-20% down with 7% interest rate for 10 or 15 years after doing research. 1 person suggested a balloon at the end and another person advised against it. Please tell me if any of you have done seller financing before?  How did it work out? What were the terms? Was it worth it? Looking for a discussion for ideas on what I should consider from those more experienced in creative real estate financing.

[Marco Bario]

@Tara Montgomery

If you're selling, it's about the payer. 

If you're selling a single-family home to an owner-occupant (I don't know if you are) – the "perfect" seller-financed note is 20% down, 10% interest, 10-year term. But that's a unicorn. 

Why? There's a balance between what's good for the seller and what works for the buyer.

If the buyer can't afford the payments, they've been set up to fail. No one wants that.

In today's environment, try to set the interest floor at 7%... more of you can make it work. Avoid a 30-year term unless the payments aren't affordable otherwise. 15 - 20 years if you can. Minimum 10% down. I'm not a fan of balloons... but if there is one, I suggest 7 years or longer. 

You can look at area comparable rents. Keeping your payment in the range of rents (allowing for expenses a homeowner will pay and a tenant doesn't) tends to keep owner-occupants on track.

Your attorney or an attorney-owned title company can create the docs and manage the closing. There's something called a "lender's title policy" you should ask them about and have your buyer pay for at closing. 

After you close - use a loan servicer to collect payments. Your promissory note can require escrowing taxes and insurance. A loan servicer can collect this and make tax and insurance payments. Other benefits here also.

Finally... the best advice I can offer is to use a third-party underwriter. They'll take a loan app, pull credit, verify income, and verify the ability to repay. Your buyer can pay for it at closing.