Three Seller Financing Mistakes to Avoid
Seller financing was very popular in the past, particularly in farming and rural communities. Popularity for this arrangement, in which the seller holds the note on a property in exchange for payments until the parameters of the sale are satisfied, then popularity waned slightly. Today, seller financing is becoming more popular with the advent of shared-equity and rent-to-own models of home buying. If you are planning on financing your property that is for sale, below are three of the biggest mistakes to avoid.
Not Checking Credit
It is essential that all sellers check the credit of any potential buyer. The buyer’s credit report can provide you with their payment history and how promptly they have made payments in the past. One of the worst things that can happen to sellers who finance a home on their own is that the purchaser does not check the credit. Or, they are not aware of what is considered a good credit score as opposed to an unfavorable one. There are straightforward applications buyers can fill out that grant you access to their credit report. If possible, do not finance any potential buyer with a credit score below 700.
Charging Lower Interest Rates
Many sellers think that charging a lower interest rate will help them sell their property. It is true that lower interest rates are more favorable to potential buyers. However, the benefits of them for sellers do not necessarily outweigh the drawbacks. It is easy to see just by looking at increasing gas and food costs that money is worth more today than it will be worth tomorrow.
So, how much interest should sellers charge? A good benchmark is at least two to four percent higher than the standard interest rates offered by banks for similar transactions. The interest rate charged should reflect the type of property, the purchaser’s credit score, and the down payment paid.
Reduced Down Payment, or No Down Payment
Just as sellers want to entice potential buyers with low interest rates, they also often use low or no down payment as a similar tactic. There is a big problem with this.
The larger a down payment made by a purchaser, the more equity they have in a property and therefore, the more they have at stake if they fail to make timely payments. When a buyer does not make any down payment, they have nothing to lose if they do not make payments on time, or at all. Generally speaking, it is recommended that sellers require a downpayment between 10 to 20 percent of the overall purchase price at closing.
Our For Sale By Owner Lawyer in New Port Richey Can Help You Avoid Mistakes
The best way to ensure no mistakes are made when you are financing a property for sale is to work with a New Port Richey for sale by owner lawyer. At Messina Law Group, P.A., our experienced attorney can provide the legal advice you need to ensure you are protected before and after the sale. Call us now at (813) 492-7798 or contact us online to schedule a consultation and to learn more about how we can help.
Source:
nar.realtor/seller-financing
