Own Financing & Notes
I want to sell a house w/out a realtor and finance it myself (to open up the door for more buyers) Then I want to sell the note to a broker. How difficult is it to sell a note? Do they have any strict requirements that anyone knows of? I need to use the cash I get for another home purchase.
Not difficult. Advertise in local paper. Discount will vary with the amount of the Note, Interest rate, Payment schedule, Equity above the note, Value & type of property securing the debt & phase of the Moon.
Call a few of the ads in your local paper, tell them what you're doing, and ask what they'd pay for various scenarios.
Owner financing can most definitely put money in your pocket, and using temporary seller financing is a great way for to avoid paying realtor's commission.
You simply do not need a realtor to move properties you own by using this method:
1. You advertise in your ads "Owner Will Finance"
2. You will get a LOT more responses because there are lots of buyers who do not want to deal with the hassles of banks, pay all sorts of junk fees, etc.
3. You pre-screen all buyers in the same way, collecting data
4. Once you have the best candidate for the house, you work with a note broker who deals directly with note buyers to qualify the buyer
5. The new 1st lien will be bought at a discount (as this represents the equity in the note to the note investor).
6. Suggestions will be made to you to minimize the discount, increasing your cash proceeds at close.
7. Once a buyer is qualified, and you the seller, and the buyer sign off on the terms and purchase price of this new note, the deal moves to close
8. This transaction is called a simultaneous close because there are two closing events: a. owner takes back the note and b. owner sells the note to the note investor
9. You can expect, GENERALLY, that an A credit profile buyer of an owner occupied single family stick built construction home, with 5% min. down, will net you 88-93% of that 95% first.
Those numbers are not set in stone, as many variables can affect the final note purchase price, but it gives you an idea that if have the equity in there, you can use this owner financing strategy to draw from the largest possible group of buyers, sell your property at its full appraised value (stop reducing price, reducing price), and sell that first lien for enough cash that you have a substantial and acceptable profit, so you can move on to future projects.
This strategy works great for all real estate pros, whether rehabbers, realtors, etc. with inventory that is moving too slowly, investors, etc. AND there is enough equity for everyone to get the cash they need.
Hope this helps. My best, Dave
It seems like the interesting thing with seller financing isn't working with A credit buyers, it's opening up possibilities for B and C buyers. These days people with excellent credit don't have any problems getting banks to loan 103% of the purchase price - they don't need the seller to finance anything.
correct, but you will find that some A credit buyers either 1. don't like dealing with banks and paying junk fees and 2. they might be landlord investors with MANY properties they are holding, and although they still have a good score, they have dozens and dozens of inquiries and banks get gun shy.
That is when seller financing can benefit an A credit buyer.
I'm interested in doing this same thing, but I'm afraid I'm totally ignorant of the note process. I'm reading up on this section of the forums, but it's not something I ever took an interest in - so please forgive my newbie question.
If a note buyer purchases the first lien on the house at, say, 88% of the 95% LTV owner-financed loan, does that mean that the owner receives 88% cash from that sale and is then only "responsible" (with the understanding that the owner is still on the bank mortgage, correct?) for the 7% carryback?
Am I totally off-base? Again, I apologize for my ignorance - and I will continue reading to try to learn the answers...