If you’re going to offer seller financing for your home, don’t go into the transaction blindly. There are plenty of ways in which sellers can nail themselves to the wall without realizing they’ve entered a bad contract, and you’ll want to protect yourself from buyers who have no intention of fulfilling their end of the bargain. Following are a few dos and don’ts for seller financing that you should consider.
Do Check Credit
It is in your best interests to find out why this particular buyer has requested seller financing. This is usually an indication of poor credit history, sometimes in the form of delinquent accounts, and sometimes because of many missed or late payments. Find out what is in the buyer’s credit history so that you can judge for yourself whether he or she is a high risk.
A limited credit history or a few old mistakes might not negate the possibility of offering seller financing to a buyer, but significant bad debt or a strong history of non-payment should set off alarm bells as soon as you discover it. You might be tempted to help someone out, but don’t do it at your own peril.
Don’t Offer a Prepayment Discount
This is something that many buyers will try to finagle while negotiating real estate deals, but don’t fall for it. This isn’t something they would traditionally get from another lender, and can make the house note un-saleable at the point at which the buyer assumes a traditional mortgage. You don’t have to include a prepayment penalty in your contract, but seller financing shouldn’t be an excuse to get a great deal.
Do Hire a Real Estate Agent
When you offer seller financing, you shouldn’t assume all of the responsibility yourself, particularly if you are unfamiliar with the process. A real estate agent can find things that you might miss, and will help negotiate on your behalf. This is important if you want to get a good deal, and if you want to avoid being taken advantage of. There are far too many issues that can arise from a bad seller financing contract, and you’ll want to sidestep those wherever possible.
Don’t Lower Interest Rates
The interest rates you charge when offering seller financing is like a cushion, and shouldn’t be minimized for any reason. Research the type of interest rate the buyer would get through a traditional lender, then use that research to set your own rates. Don’t listen to sob stories or claims of lower interest rates elsewhere, and don’t lower the interest rates “just to be nice”. This is a business transaction and should be treated as such.
Do Hire an Attorney
In addition to the aforementioned real estate agent, you’ll need an attorney on your side, as well. He or she will be more equipped than a Realtor at finding miniscule legal problems that you wouldn’t have known about otherwise. The more professionals you have in your corner, the better deal you’re going to get. And you can bet that the buyer has a real estate agent and an attorney.
