|
Question: How
are the rates set for seller financing?
Answer:
The interest rate on an
owner-carried loan is negotiable. Ask your agent to check
with a lender or mortgage broker to determine the current
rate on institutional first (or second) loans.
Seller financing typically costs less than conventional
financing because sellers don't charge loan fees (points).
Interest rates on an owner-carried loan will also be
influenced by current Treasury bill and certificate of
deposit rates. Sellers usually aren't willing to carry a
loan for a lower return than they would earn if their money
was invested elsewhere.
[Top]
Question: What
are the benefits of seller financing?
Answer:
Seller financing offers
tax breaks for sellers and alternative financing for buyers
who can't qualify for conventional loans.
If you are a seller, the risks you face are the same as
those facing any lender: Is the borrower a good credit risk?
Will the property hold enough value over time to allow for
the repayment of all loans made against it?
You should run a full credit check on the borrower, require
hazard insurance on the property and include a due-on-sale
clause. There also are financing, disclosure and
repayment-term requirements that need to be met. It is wise
to consult a lawyer when putting together this kind of
transaction.
[Top]
Question: What
is seller financing?
Answer:
Seller financing is when a
seller helps to finance a real estate transaction by taking
back a second note or even financing the entire purchase if
the seller owns the home free and clear. Usually sellers do
this when a buyer has difficulty qualifying for a
conventional loan or meeting the purchase price.
Seller financing differs from a traditional loan because the
seller does not give the buyer cash to complete the
purchase, as does a lender. Instead, it involves extending a
credit against the purchase price of the home while the
buyer executes a promissory note and trust deed in the
seller's favor. These special circumstances must be
acceptable to the lender who makes the first mortgage on the
property.
The necessary paperwork is prepared by the title or escrow
company after the terms are worked out between the buyer and
seller.
If you are a seller considering such an arrangement, it is
critical to thoroughly evaluate the creditworthiness of the
buyer first. Fear of default makes many sellers reluctant to
take back a second. But seller financing can bring a higher
price plus complete the sale sooner in some situations. For
more information, contact the Internal Revenue Service for a
copy of its Publication 537, "Installment Sales."
Order by calling (800) TAX-FORM.
[Top]
|
