Archive for the ‘ Information ’ Category

Benefits and Burdens for the Buyer When Seller Financing a Home

April 21st, 2016

Seller Financing is also called owner financing, contract for deed, or seller carry back. When you use seller financing to buy a home you pay the seller monthly until the seller is paid the agreed purchase price of the home. This is called an installment sale. No bank is involved. The seller receives their money over time as you pay them.

Terms of the sale are generally negotiable. You can negotiate the sales price, down payment, interest rate, monthly payments and whether or not there is a balloon. See balloon payment under suggestions you should consider.

This is not rent to own. You own the property from day one. If you fail to pay the seller on time, pay property taxes, or keep the property insured, the seller has the right to take the property back and you will lose your down payment as if you borrowed money from a bank.

Benefits

You own the home. You live in it while you pay the seller.
You can build equity through appreciation and by paying down what’s owed to the seller.
If you sell it you get to keep the difference between what you still owe the seller and what you sold the house for minus your closing costs.
You get to deduct the interest you pay the seller on your income tax return.
You get to deduct the property tax you pay on the property on your income tax return.
You can leave the home to you family.
You can sell the property at any time.

Burdens

You must make payments to the seller just as you would have to if you borrowed money from a bank to buy the home. If you miss payments the seller can take the property back.
You are responsible for paying the property taxes.
You must keep the property insured.
You are responsible for the maintenance and repairs. For instance, if the roof starts to leak or the hot water heater goes out, it is your responsibility to fix or replace it. You own the home, not the seller. This is an added expense you must consider.

Suggestions You Should Consider to Protect Yourself

Use a title company and get title insurance to assure there are no undisclosed liens and that the seller has a legal right to sell the property.
Record the agreement in the county the property is located so everyone knows you own the property.
Make sure the agreement is in writing.
If your state has a standard seller financing form, use it.
Use an impartial third party like an escrow company to collect the payments and hold the release of mortgage or deed. That way you will have a true and fair accounting of your payments and you won’t have to track down the seller when you pay the home off.
If you are unsure about the value of the property, then get an appraisal.
Hire someone to do a home inspection.
If your agreement calls for a balloon payment, then make sure the property, and you, can be financed in the future by a bank. A balloon payment is where you must pay the seller a lump sum of money in the future in order to pay the property off. If you can’t pay the balloon, then you will lose the property and any equity you have built up. If you or the property cannot be financed in the future, then don’t enter in to an agreement that requires you to make a balloon payment.
Use a REALTOR® and/or attorney.


1,469 Transactions

March 15th, 2016

In 2015, 1,469 properties sold using Owner Financing in Bernalillo, Valencia, and Sandoval counties. To put that into perspective, GAAR reported that there were 10,928 attached and detached homes sold in 2015 in the same counties.

Have you spoken to your Buyers and Sellers about Owner Financing? It’s also known as Seller financing or Seller Carry Back. It’s the other way to buy and sell property.


Seller Financing Update

August 7th, 2014

The number of Real Estate transactions closed using Seller Financing in the first half of 2014 compared to 2013 increased by 13%. In the counties of Bernalillo, Sandoval, and Valencia there were 792 seller financed transactions in 2014 compared to 688 in 2013.  Why? I can only guess that it is due to tighter credit, higher FHA fees, and Realtors doing a good job of educating buyers and sellers about Seller Financing. We only do research in these three counties, but we escrow Real Estate Contracts from all over the state and those numbers are also up.

By the way, more consumers chose Security Escrow to be their Escrow Company over other escrow companies. Contact us today. 


New Rules for Seller Fianncing

May 28th, 2013

The Dodd-Frank Act amended the Truth-In-Lending Act and established some new rules and regulations concerning seller financing. These new rules appear under the Loan Originator Compensation Requirements under the Truth in Lending Act that was issued January 2013. Read it here: Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z)

These rules only apply to property that includes a dwelling that the buyer is going to reside in. There are no new rules that effect seller financed transactions that include vacant land, commercial property, multi-family and single family residence where the buyer does not plan to move into the property. Most people only use seller financing a few times during their lifetime. Therefore, these new rules will not have any effect on the vast majority of property owners that offer seller financing. These new rules do not go into effect until January 10, 2014.

If you use seller financing to finance the purchase of a property with a dwelling where the buyer is going to reside you are now considered a loan originator. The following are two exclusions. If you follow these rules then you will not have to become a loan originator.

Exclusion #1

Here are the guidelines for those who plan to sell only one property in a 12 month period.

1. The natural person, estate, or trust provides seller financing for the sale of only one property in any 12-month period to purchasers of such property, which is owned by the natural person, estate or trust and serves as security for the financing. A natural person is in an individual; it is not an entity like an LLC, S-Corp, Partnership, etc.

2. The natural person, estate or trust has not constructed, or acted as a contractor for the construction, of a residence on the property in the ordinary course of business of the person.

3. The natural person, estate or trust provides seller financing that meets the following requirements:

a) The financing has a repayment schedule that does not result in negative amortization. (A balloon payment is permitted),

b) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases and provides for the rate to be determined by the addition of a margin to an index rate based on a widely available index such as US Treasury or LIBOR. An annual rate increase of up to two percent with a lifetime cap of 6 points is considered reasonable

c) The seller does not have to determine if the buyer has a reasonable ability to repay.

As you can see the only thing that has changed for seller financing in the above exclusion is the adjustable interest rate requirement. Most seller financed transactions have always used fixed rates anyway. This just tells you how to structure the interest rate if an adjustable rate is used. This will have very little impact on seller financing.

Exclusion #2

Here are the guidelines for those who plan to sell up to three properties in a 12 month period.

1. The person provides seller financing for the sale of three or fewer properties in any 12 month period to purchasers of such properties, each of which is owned by the person and serves as security for the financing. A person includes a natural person, trust, estates, LLC, S-Corp, partnership, etc.

2. The person has not constructed, or acted as a contractor for the construction, of a residence on the property in the ordinary course of business of the person.

3. The person provides seller financing that meets the following requirements:

a) The financing is fully amortizing. A balloon payment is NOT permitted

b) The financing is one that the person determines in good faith the consumer has a reasonable ability to repay. This regulation does not require retaining documentation of the determination. There is no standard for debt to income ratio or credit score.

c) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases and provides for the rate to be determined by the addition of a margin to an index rate based on a widely available index such as US Treasury or LIBOR. An annual rate increase of up to two percent with a lifetime cap of 6 points is considered reasonable.

If you are planning to offer seller financing on more than three properties within a 12 month period that have a dwelling in which the buyer is going to reside or for further clarification and interpretation you should contact the Consumer Financial Protection Bureau at (202)435-7700 or via email at [email protected]

 

 

I am not an attorney and am not giving legal advice.


$1,000 Security Escrow Scholarship

February 2nd, 2012

Has someone in your family expressed the desire to be in the Real Estate profession?

If yes, please encourage them to apply fo rthe $1,000 GAAR / Security Escrow Real Estate Scholarship! This scholarship is awarded each year to help pay for required classes and the state exam to become a Real Estate Licensee.

To be eligible, the applicant must be 20 to 24 years old and a relative of a REALTOR® member of GAAR.  Along with a simple application form, the applicant must submit a short essay (2 – 3  paragraphs) that answers just one question – Why would a career in real estate be a good fit for you?

The deadline for submitting the application and short essay is February 8, and the recipient of the scholarship will be recognized at the GAAR Awards Gala, February 17, 2012.
This is the perfect opportunity for someone in your family to get started in a great profession.
Don’t delay! Mail, email, fax, or hand deliver your application to GAAR by February 8.
DOWNLOAD APPLICATION