Guidelines for Structuring Your Seller Finance Notes

If you are going to sell a piece of property it is very important

1.a) Recommended Interest Rate for owner occupied 1-4 Unit Residential:

  • 0-8.5% for a 720+ credit score
  • 0-9.5% for a 600+ credit score
  • 0-11% for below 600 credit score

Add 1% to the rates above for Commercial properties,  2nd homes and vacation properties
Add  and additional 1% to all rates Non-owner occupied residential or Commercial  properties.

1.b) Credit score of your buyer/borrower(s) should be over 600, preferably over 625. Don’t sell to Buyers with credit scores of under 600, unless you will keep the Note and are happy to deal with added risk of foreclosure due to default – which is a strong possibility. You might think the Bad Credit buyers are the only ones who need Seller Financing to buy a property. That isn’t the case. Self employed buyers,  buyers with average credit above 600,  and buyers with a number of real estate investments are often turned down at the bank.  With Seller Financing, you can attract many Buyers who cannot get traditional lender or bank financing, e.g.:

  • Self Employed Buyers
  • Successful investors who own too many properties for the bank
  • Fair, good, and high credit buyers that just had a divorce, bankruptcy, or a not so recent foreclosure that disqualifies them for a bank loan.

1.c) Include a 5/7/10 year Balloon due date on a 30 yr amortized loan.   This makes the loan more valuable, because in the case of rising interest rates, the interest rate can be increased if the buyer does not refinance and payoff the balloon.

1.d) Always get a Cash down payment, zero down loans are heavily discounted on resale:

  • 10% or greater for owner occupied, 20 % recommended
  • 20% or greater for non-owner occupied,  25% recommended
  • 30% or greater for commercial property or a sale of a business

1.e) You can and should sell at FULL market price for the property if you offer Seller Financing.

1.f) You may optionally charge, 1-4 percentage Points for the Seller Financing loan you are providing, and for creating the Note and mortgage documents. This is similar to a bank or lender, and it improves your total cash out from the sale.

1.e) If you do not get the recommended cash down payment, you can create and carry an additional 10% second mortgage loan that you do not sell. In the current tight RE market conditions, this improves the amount investors will  pay you for the primary loan that we are purchasing and gives you better total cash out in the long run.



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