If you were ever looking for a home or selling a home, you might have seen some signs saying, “Seller Financing Available”. What exactly does that mean? Well, quite simply, if you are the buyer, that means the person selling the home is going to finance your loan and you would be paying them mortgage payments the same as you would if you were paying a traditional bank.
If you are the homeowner, and you are the one offering the home with “seller financing”, that means you are acting as the lender or bank in this situation. So, what does this have to do with notes? It has everything to do with notes!
Many note investors use this as one of the many tools in the note toolbox. Some create many notes using this very method. Remember in my previous articles and webinars I mentioned that note holders do not own the actual property, but rather, they own the loan on the property?
Well, sometimes if the mortgage note was non-performing and the property was foreclosed on, the property then becomes “Real Estate Owned” REO. In this instance, the note holder IS the owner of the property and has all rights to do what they want with said property. The same as if your traditional bank foreclosed on your home, it then becomes a Bank Owned property.
Now the seller can offer a buyer terms that meet their needs, they can make it a rental property, an Airbnb, Lease Option, etc. In a seller financing situation, just like with traditional banks, the borrower is responsible for taxes, insurance, and maintenance on the property.
Seller financed properties typically have higher interest rates due to the higher risk of borrower default. Otherwise, the borrower could just go get traditional bank financing. And this is not to say that ALL seller financing is for risky borrowers. Some borrowers may have nontraditional income like a self-employed person or actor for instance.
Some best practices for providing seller financing would be to get the loan underwritten by a Residential Mortgage Loan Originator or RMLO and board the loan with a licensed mortgage loan servicer. Not only will this ensure you comply with certain Dodd Frank consumer regulations, it may also make your note more valuable down the line if you choose to sell it.
The way things have been going this year with the pandemic, forbearances and moratoriums on foreclosures, there may be ample opportunity in the future to provide seller financing to potential borrowers as they rebuild from job losses and traditional banks tighten lending criteria.
As always, stay safe out there!
For more information on notes or if you have notes to sell, reach out to Zee at Awanna
Holdings, LLC (571)659-5005. ©Awanna Holdings, LLC (Sept 2020-21), zee@awannarandh.com www.awannarandh.com