There is a growing number of homebuyers entering seller finance agreements in the country. For younger buyers who do not have enough starting capital to pay for a deposit, or for those who are unable to qualify for home loan assistance programs, seller finance agreements are becoming an attractive option to purchase property. This surge in popularity is the reason why I listed down a few reminders for first homebuyers out there on what to do and include when creating a seller finance contract.
1. BEEF UP ON YOUR SELLER FINANCE KNOWLEDGE
Doing your research about seller financing is crucial when you’re creating the deal on your own. Dig up everything that you can about this investment strategy from articles in books, handouts, and even those posted online. Moreover, there is a growing number of seller-finance experts like Rick Otton who hosts workshops every once in a while. If you have the time, you may also want to look into these types of events and see how other people are able to apply seller finance agreements.
If the lone wolf approach is not your cup of tea, you can also try seeking the help of barristers through legal clinics in law schools around the country or through legal advice websites.
2. TALK THROUGH THE TERMS OF THE AGREEMENT
When I was helping out my daughter and her husband get their first home, I noticed that they were so blinded with the color of the house and other physical aspects of the property that they completely forgot to focus on the terms of the deal. The truth is that my daughter is not alone in this way of thinking. Many first home buyers are prone to fall into this mental trap, because they think that buying houses is just about paying the deposit and monthly fees.
Home buyers, especially the first timers, should talk with the sellers not only about the purchase price and the amount of monthly repayments, but also about how much would be the interest rate and the consequences they would face in case of non payment or default.
3. DRAFTING THE CONTRACT
The first paragraph of a seller finance contract is called the introduction. This is commonly used to indicate who are the parties involved, where the property is found, and the dates when the contract will take effect and when can the buyer enter the property on his own.
After the introduction is the terms of the loan. This is where the verbal agreement of the buyers and sellers are being put into paper, in order to be enforceable in court. Like what I explained earlier, the terms cover the price, what will be the buyer’s obligation after partial payment or when the seller agrees to give financing. This part also includes the amount to be paid as down payment, when the deposit should be paid, and the total amount of debt the buyer owes the seller. It’s very important that the amounts should be indicated very clearly, to avoid any misunderstanding.
In case you didn’t know, there are 2 kinds of seller finance agreements. The first is called a full purchase price agreement. The seller provides the buyer a mortgage for the full purchase price of the property minus any down payment from the buyer. The second type, known as a partial purchase price agreement, gives the owner the right to provide a portion of the purchase price of the property to the buyer, instead of a third party like a bank.
I mentioned the distinction, because some contracts include a loan-servicing clause. The loan-servicing portion of a seller finance contract allows third parties to handle the mortgage documentations and payment process. These provisions are fairly popular nowadays, so that the seller wouldn’t have to deal with issues arising from the buyer’s late payments.Tags: Seller finance contracts, seller finance terms, what is seller finance, what to look for in seller finance contracts