Seller Finance Program Q & A

Seller Finance Program

Q & A

What are my options for selling my home?

• Sell traditionally using a Realtor - There will typically be things you need to do to prepare your home for sale that might include paint, repairs and even new flooring.  Expect buyers to make an offer for less than the asking price, depending on the market and your home.  You will most likely come out of pocket 8%-10% of the sales price to cover concessions, closing costs and commissions.  
• Offer your home as a Rent-To-Own - You can normally rent the house "As-Is" as long as it is livable and in reasonable condition.  You can get top market price and help "stop the bleeding" on your monthly mortgage payment until the tenant acts on the option to purchase the house (usually within 6 to 12 months).  Houses usually rent much faster than they sell.  The Buyer/Tenant will bring a down payment that will cover commissions and fees, but you may be required to pay a portion of closing costs when the buyer purchases the house.  Remember, while the Buyer/Tenant has the option to buy, they also have the option not to buy.  This is a great way to get a better quality tenant in the house rather than just renting outright.  
• Sell your home with Owner Financing - There are many was to setup an Owner Finance deal.  With most, the seller sells the house to the buyer subject-to the existing mortgage remaining in place for a period of time.  This period of time, which can be anywhere from 6 months to 5 or more years, is dependent on the amount of time needed to pay down the mortgage balance so that the house will appraise when the buyer refinances. It is also contingent on the speed with which the buyer can rebuild their credit score and create a payment history sufficient to help them qualify for refinancing   Both are known prior to going to closing and are specified in the contract.  Closing is done through an attorney and/or title company.  The buyer brings a down payment to cover most if not all the closing costs, commissions and fees.  In most cases (but not all) the Seller will not come out of pocket any money.  The house can be sold for market price and if you have substantial equity, you'll redeem that equity when the buyer refinances.  Sellers love this option because they know the house is sold and they will not be a landlord, they typically do not have to come out of pocket any money and they can normally get market price or, at least, what they owe on the houses.  Most Owner Financed homes sell within 30-60 days.  
• There are many ways to sell a home.  We'll speak to you about what your needs are and, together, come up with a plan that best helps you accomplish your goals.  

Can I stay in the home?

• Yes, it’s your home until you sell it. You can, but are not required to, stay in the home until a buyer is found and the sale is completed.

Should I continue to make the payments?

• Yes. If you are behind, a Seller Finance transaction is still possible, however, the more behind, the more a buyer would have to bring to make the loan current and the less buyers their might be available to buy the home.

• Also, as the loan goes into default, a foreclosure becomes possible.  There are still possible ways to keep you from foreclosure, but time is of the essence and we need to move quickly.

Are there other alternatives to selling with Seller Finance?

• In general, if the home has little or no equity, the only way to sell the home (for less than what is owed) may be to do a short sale or to sell offering Seller Finance. Otherwise you will have to bring money to the closing table in order to cover the loss.

• If you don’t want to sell the home, you may consider negotiating a forbearance or loan modification agreement with your lender. These agreements generally allow a homeowner to agree to a schedule to “make up” missed payments that resulted from a temporary interruption in income and/or reduce the payments going forward. If your situation is more permanent than temporary, you will likely not be approved for a forbearance, and a short sale or Seller Finance may be a better option.

How does this program affect my credit?

• It depends. If you are behind in making your payments and/or have a spotty payment history, when the buyer buys the home, though the Seller Finance program, your payments will be brought current thus improving your credit
• As long as timely payments continue to be made monthly, your credit will improve or remain unchanged. Obviously, if payments are late or missed, your credit will degrade.

• In most cases, although the loan(s) remain in your name they are treated as a cash neutral account (a debt with an offsetting credit).

Will I make any money?

• In most cases, if the home has little, no, or negative equity, there is no money to be made by the homeowner.

• In cases where the home has significant equity, yes.

Will I have to pay anything?

• Depending on the home and situation, the Homeowner may be asked to pay a small processing fee, and may or may not have to pay some closing costs.

• One of the great benefits of this program is that most of the closing costs, assignment fees, and commissions (if any) are paid by the buyer
• The home is generally sold as-is and repairs are the responsibility of the buyer.

How long does this process take?

• Normally 1-3 months, but could be less than a week!. Most of this time is spent showing the home to a list of buyers that have already been found who are looking for these homes offered for sale with financing.
• As with any sale, you can negotiate the closing date with the buyer.

What are the odds of success?

• Pretty good! Many factors affect the odds of success – most notably, would anyone want this house with this payment?

• It has always been true that offering a home with financing, as is done with the Seller Finance Program, allows a homeowner to sell a home FASTER and at a HIGHER PRICE than most any other method of selling a home.

What if the buyer stops making the payments?

• If payments are missed, you have the right to foreclose on the property and get it back. In most cases, it would be preferable, however, to call the buyer and try to resolve the situation

• You can always call the lender or check though their on-line loan servicing website to verify that payments are being made.

• If a foreclosure is deemed “necessary”, an easy alternative to foreclosure is to offer the buyer a deed-in-lieu. In other words, you can ask the buyer to deed the property back to you so that you don’t have to foreclose on them, and ruin their credit.

• In all cases if there is trouble with the buyer, call us. We will help you get the home back so that you can quickly sell it again.

What if the buyer trashes the home?

• The advantage of SELLING a home through the Seller Finance Program is that the buyers are actually buying the home and not renting. In most cases buyers have a pride in home ownership and care more for the home than renters.
• Regardless of the condition of the home, it can be offered to a new buyer as-is.

What if I have multiple loans or liens against my property?

• All loans/liens against a property must be paid off at closing or become the responsibility of the buyer. Before the property is purchased, the buyer will get a copy of the title report listing any liens on the property.

Should I declare bankruptcy?

• You should definitely seek the advice of an attorney.  Some people facing payments on a mortgage they cannot afford consider bankruptcy as an alternative. The truth is that bankruptcy does not prevent a home from still being foreclosed on – it just delays the process briefly. If selling the home through the Seller Finance Program would leave you financially solvent, it is probably a far better alternative to bankruptcy.  We advise you to seek the counsel of a financial advisor or attorney.

What happens if I do declare bankruptcy?

• A home cannot be sold or foreclosed on (auctioned) while in bankruptcy (Ch 7 & 13).
• When a homeowner declares bankruptcy, the lender will file a motion with the bankruptcy court to have the home removed from the bankruptcy so they can foreclose.

• Bankruptcy is a common strategy to avoid foreclosure, but the reality is: bankruptcy only DELAYS the foreclosure temporarily, and does not prevent it.

• Fees and missed payments pile up during bankruptcy making foreclosure more likely and less preventable, which can usually leave homeowners with a bankruptcy AND a foreclosure.

• If a homeowner’s financial problems can be mostly resolved by selling the home, a Seller Finance Sale or short sale is often a much better option than a bankruptcy.

• If bankruptcy is inevitable, timing the Seller Finance sale or short sale with the bankruptcy is critical. It’s often better to do the sale first, or if that is not possible, to coordinate the sale during bankruptcy so that it can be started as soon as the home is removed from the bankruptcy.

What is a 1098 Interest statement, and will I get one?

• Your lender will continue to issue a 1098 interest statement with your name on it each year.  Because you are no longer the owner of the home, and the one paying the mortgage, you are no longer allowed to take the interest deduction.
• The new buyer is entitled to take the interest deduction, although they will disregard your 1098 statement and have their CPA generate one for them.

Can I buy or rent another home after selling using the Seller Finance Program?

• In most cases – yes. If you are buying, you may have to explain to your new lender (when asked about the old loan still on your credit report) that you sold the home through a Seller Finance Program. In some cases, the underwriter will ask the new buyer to sign a brief letter verifying that they purchased the home through a Seller Finance Program and are responsible for the payments going forward.

What kind of buyer will buy the home?

• Probably a self-employed person that can’t get a conventional loan.
• Possibly a person with less than perfect credit, but with a good income and a down payment necessary to pay most of the fees, and closing costs associated with the Seller Finance Program

Disclaimer:  We are not attorneys, CPA’s, Financial Advisors or licensed Real Estate agents/brokers, etc.  We are real estate investors who make money by creatively buying and selling real estate.  You should always have your contracts, taxes and other financial or legal matters reviewed by an attorney and/or financial advisor before completing any real estate transaction.  Understand that we do not represent the buyer or seller in the Seller Finance Program.

Homestead Exemption Scams

Many tax jurisdictions give you a small break on your property taxes, called a homestead exemption, for the house that you actually own and live in. You have to file for the homestead exemption to get it, but it's typically a simple form that you can download for FREE off the Internet from your Appraisal District website, such as http://www.TAD.org.

Scammers will try to get you to pay them to send you the form, and to file it out for you. Right after closing on the purchase of a home, buyers may get a mailing from the "Homestead Recording Service", with an impressive downtown address. It contains an official-looking form titled, "Designation of Homestead Request Form". In bold it says:

Property Record Date: 10/05/2011 (or whatever date your property deed was recorded)
Our Records Show Filing: None

It seems official, because they know the date you bought the house. That's public information and anyone can get it.

If that doesn’t convince you, the reverse side of the form is completely filled in with the relevant text from the Texas Constitution and the Texas Property Code about homesteads. The form goes on to say, in all caps, "YOU MUST USE THIS FORM OR WE WILL NOT PREPARE YOUR DESIGNATION OF HOMESTEAD."

You're instructed to include a $35 fee to get them to file the paperwork to declare your home a homestead. But this may not even be the same thing as applying for a homestead tax exemption.  Don’t fall for it!!

In Tarrant County, you may get an application form from the appraisal district office or http://www.tad.org/Webpages/homestead_exemption_request.cfm or call (817) 284-4063 to have an application mailed to you.  There is absolutely no fee or cost to receive an application from Tarrant Appraisal District, or to file an exemption application with Tarrant Appraisal District

If you have questions about exemptions or property records, or if your mailing address is incorrect, contact Tarrant Appraisal District's Exemptions  Department at 817-284-4063

Paying To Sell Your Own Home

Sounds ridiculous, doesn’t it?  Who, in their right mind, would pay to have a buyer buy their home?  For so many Americans, that is exactly what would need to happen if they sold their house today.  Why?  No equity – plain and simple.  You see, with selling a house, comes the burden of paying commissions, fees concessions and closing costs.  These amounts can be as high as 8%-9% of the final sales price of the home.  So, if your house sells for $150,000, you could be on the hook for $13,500 in selling costs.  That might be manageable if you only owe $135,000, but for many folks, it’s not.
Unfortunately, many loans were given out in the last decade that required little to no money down. While this may have allowed folks the opportunity to buy instead of renting, it is now the source of much stress and hardship.  Why?  People are losing their jobs, property values are dropping and not enough time has passed (and consequently not enough payments have been made) to have built up enough equity to cover closing costs.

“Upside down is not a good place to be when you’re already struggling to make ends meet and the mortgage becomes more difficult to pay every month.”

Worse yet, some homeowners have found themselves upside down in a negative equity position on a relatively brand new home.  How could this happen?  Well, if you borrowed $250k, for example, and at the time the house was worth $260k, you had a little equity to begin with.  Now its 3-5 years later, the market has changed and the house is only worth about $235k, but you still owe $240k on the mortgage.
Upside down is not a good place to be when you’re already struggling to make ends meet and the mortgage becomes more difficult to pay every month.  They’d like to sell, pay off the mortgage and get out from under the whole situation.  Unfortunately similar, newer houses are selling for much less than the homeowner owes.  They’d be lucky to get the $235k, which is not even enough to pay off the mortgage and cover an additional $21k in selling costs.  In this scenario, the seller would actually have to come to closing with at least $26k to make their problem go away.

What many people may not know is that there are a variety of ways to sell a home.  You’ve got to do your homework and get “bids” from several realtors and/or investors before you sell your house.  Find out who can bring the solution that best meets your needs.  At the very least, you’ll discover who you don’t want to do business with and learn a lot more about the housing market and your potential options. 

There are several solutions for the homeowner who find themselves needing to sell, but have very little equity or are upside down on their mortgage.  One strategy is selling the house with owner financing using a technique called Mortgage Assignment.  With Mortgage Assignments, we are simply selling a home which is not selling through traditional real estate means to buyers that do not qualify for traditional financing.  Using this strategy, the loan(s)/lien(s) are assigned to a buyer in exchange for the deed (ownership).  

Although virtually no loans are “assumable”, anyone can make payments on anyone else’s mortgage and as long as those payments are made, the lender will consider the loan to be performing.  In a Mortgage Assignment Sale, the buyer agrees to make payments on the seller’s mortgage going forward in exchange for ownership of the property.

Sellers like a Mortgage Assignment because it is a quick and easy way for them to sell their house when they've had a hard time selling, or that they are unable to sell because it is upside down.  This strategy works whether their house has very little equity, no equity, or even negative equity..  In many cases the home owners are able to sell their house fast for near full market value!

“No homeowner should be cornered into pursuing just one solution to their problems.  You need options.”

Home Buyers love Mortgage Assignments because they create an easy way for them to buy a home without qualifying for a loan through a bank.  There is an abundance of buyers like this right now, because, it's very difficult to buy a house today with conventional financing - Even if you have good credit and a 20% down payment.

What is the Profile of a Typical Mortgage Assignment Candidate?

• Has a difficult to sell home – due to the home having little, no, or negative equity, or simply a home that is hard to sell size, or location, or a home in a down market, etc.
• Needs to sell more quickly than is typical using conventional list and wait method
• Bought or built a new home with a $0/down (or minimal down) mortgage in an area that has not appreciated.
• Refinanced an existing home, borrowing most of the equity, in an area that has not appreciated
• Bought a home in an area that has seen significant price reductions
• Has suffered a divorce, lost job, medical problems, or other financial hardship including any combination of an increase in expenses and/or decrease in income
• Has a non-owner occupied investment property that is no longer performing to generate positive cash flow
• Has an Adjustable Rate Mortgage (ARM) in which the payments have increased to an unaffordable level
• Has had an increase in payment due to an escrow shortage adjusted after tax increases, or an under-funded escrow from the purchase of a new home

You can learn more about Mortgage Assignments and other selling options by visiting us on our website at http://www.housebuyerssellers.com.  No homeowner should be cornered into pursuing just one solution to their problems.  You need options.  Get those options by talking to several realtors and several investors – Each will bring a different set of experience, solutions and options for you to choose from.  We always recommend that you seek the counsel of an attorney and/or financial advisor before signing an agreement or going forward with a transaction involving real estate.