In an effort to sell fast and stand out from the crowd, sellers are turning to the owner financed installment sale. By accepting payments over time from the buyer, the seller provides an alternative to bank financing. This attracts more buyers and helps the owner get attention in a market flooded by oversupply from foreclosures.
Of course sellers don’t want to jump from the frying pan into the fire by trading a house that won’t sell for a buyer that won’t pay.
Here are 5 safety tips for sellers considering an owner carry contract:
Tip #1 – Review the Buyer’s Credit
How buyers have paid bills in the past is a good indicator of how timely they will make future payments. Always review the buyer’s credit prior to accepting a promise to pay. Sellers can obtain a signed authorization from the buyer to pull credit through a reporting agency, or the seller could simply ask the buyer to obtain a copy of his or her report for the seller’s review.
Tip #2 – Get a Down Payment
The more money a buyer puts down, the more “skin” they have in the deal. The greater this equity, the lower the likelihood the buyer will stop paying.
When people have little to no equity, they are more likely to default or just walk away from the home. Few sellers want the hassle of taking back a property through foreclosure, so increase the odds in your favor by requiring a down payment.
Tip #3 – Set the Terms
The terms include interest rate, payment amount, frequency, and the due date for payment in full. There are also late fees, default clauses, requirements for insurance, and other standard provisions.
While the terms can be whatever the buyer and seller agree upon, it makes sense to set terms that are affordable to the buyer AND favorable to a note investor. This way a seller is more likely to own a note that is valuable to an investor in case they ever want to sell future payments for cash.
Tip #4 – Get Help with the Documents
In addition to putting the terms in writing, the documents evidence the lien. The obligation to pay (or IOU) usually takes the form of a promissory note, which is secured by an owner mortgage or trust deed recorded in the county records. A land contract or real estate contract are also used in some states. A qualified attorney or title company familiar with local laws should prepare the closing documents.
Tip #5 – Collect Payments Like a Pro
Tracking the payments, interest, and balance is often referred to as servicing the note. In addition to collecting payments, a servicer should verify the real estate taxes and insurance are kept current. The seller can perform servicing but it is a whole lot easier to hire a third party company to handle this process.
If you are looking for the complete system for safe owner financing be sure to read our how-to manual. It includes documents, examples, terms, credit reading tips, note investor criteria, and lessons learned from 20 years of real life experience.
Here is what one satisfied reader said:
“Your product is one of my go-to programs. I am glad you took the time to put it together. I think I paid more than 10x when it first came out and I think it was worth every penny!” Greg G – Canyon Capital
Available today in our bookstore as part of Finding Cash Flow Notes for just $297
Article written and copyrighted by Tracy Z. Rewey at www.NoteInvestor.com.
hi tracy,do you know what a seller should ask for on a church when owner financing.thanks regina firstname.lastname@example.org
Tracy Z says
Hello Regina! My suggestion is to find out what the bank rates are for financing that type of property and transaction and then charge at least 2-4% higher for seller financing. We always suggest using legal counsel and a title company for handling the documentation and closing. You might also find this article helpful:
David Baccus says
Can you elaborate on owner financing and the SAFE Act?
I’m I good to go in Texas?
Tracy Z says
You might want to check out these articles for more information:
Owner Financing, Seller Financing, Dodd Frank, Safe Act, and You!
Safe Act and HR 4173 Update – Is it Good News for Seller Financing?
Dodd-Frank Hijacks Owner Financing
TX Mortgage Commissioner Sets The Record Straight On The SAFE Act
Alan Siebenaler says
Do you have a third party servicer you can recommend for seller financing?
Yes, we suggest Note Servicing Center for handling payments on owner financed notes. You might also find this article helpful:
Lynn Henley says
Is the “owner financing note training system” you referred to, the same as the $99 ebook?
Hello Lynn! Yes, it is one and the same. Here is the link to the training system and ebook:
All the best,
The owner financing note training system and ebook provide marketing examples for letters, postcards, and brochures. We also have a script for Reverse Ad Marketing that works well with FSBO’s. It comes with our 100% satisfaction money back guarantee.
All the best,
Tracy Z. Rewey
Lynn Henley says
In your ebook, do you have sample letters/postcards to send to FSBO’s to suggest to them to sell with owner financing? If not, can you send me some examples of what (and what NOT) to say?
Fred Huneke says
Tracy. A question, unrelated, what do you know about facebook, twitter,linkedin, etc. in relation to advertising your business, webpage etc.; to get your face and name out there? If it is a good idea how do you go about it?
Thank you for any help.
Hello Fred! We have used all three social media outlets to market our business. Out of the three you referenced, my first preference is linked in followed by targeted facebook. Twitter is still experimental and we are testing to find the best way to make it effective in the professional business arena.