Seller financing is becoming much more popular in today’s difficult real estate market, but buyers beware. There are many pitfalls and deals lost, all because buyers we’re not sure who’s Stopping Them. As friend and realtor to our nativeUtah Jazz Scandinavia team, I’ve watched and know from experience the painful lessons of buyer financing, especially when it is continues to go unchecked and unaltered, or, bank sellers are 126% more likely to never respond to offers.
Here are a few some very important points to keep in mind:
1. Seller financing is most-often a “loan.” And, as a loan, it could be argued that it’s just a loan because it’s not clear that a simple loan escalated to a purchase. However, it’s up to lenders to decide on the nature of the loan, and typically whether or not it will be considered a loan.
2. The buyer’s responsibility to clearly document their bank disclosures. As important as disclosure is to the buyer and the lender, buyers seem to just throw it in, trusting that the lenders will be there in full compliance. This is completely inaccurate. In short, although the disclosure is necessary and as per the old adage, a lender may lack certain disclosure elements, yet it’s the buyer’s responsibility to actively find out that he may be mislead about the transaction. If anything is not disclosed (shopping cart, water filters, additional down payment, anything), the buyer is the one who is liable for them. If there is a disclosure and the buyer fails to disclose he has been informed and is “taken” for granted, the buyer does not have a valid legal claim against the seller. The seller was within his rights to proceed.
3. Attorneys can’t be trusted. Appraisers can, sometimes, if a case against a lender is brought. When looking at your options for a distressed property, try to find an Appraiser who is likely to work for a non-lender investment shop or anti-lender shop, as they are far less likely to cross their heart towards a lender. The good Appraiser will not only be more critical (and so is the nature of the work) but will have a good understand of the value of an asset in a non-market value situation.
Avoid the Appraiser. Don’t participate in any way with the Appraiser. The appraiser is hired by the lender and if the lender is owed a specific sales price for a specific property, the appraisal can’t be trusted. The seller won’t loan money to a buyer based on or based on a appraisal that is not accurate, and certainly not a first-glance orfunny appraisal. The seller will smart as they can to lock up an experienced, legitimate appraisal company that they entrust with “selling their house.” If you have one, it’s the Appraiser’s job to go that extra mile just to avoid hurting the seller.
Mortgage lenders can and will check the buyers credit score before approving a loan. Make sure you have your own credit score and report and can keep it updated while working with Realtors and/or Investors to sell your house. Some real estate agents and investors also shop your credit. The larger and more experienced they are, the better chance they will shop your deal. Be sure your credit score is as high as possible. At a minimum, a Real Estate Agents credit report should list no more than two 30 day lates and no more than one 60 day lates. Make sure your score is above 700, and get a credit report each year when renewal is due to ensure you are not getting in over your head or paying too much. However, this does not mean to take out dozens of credit cards, but to keep a few cards with minimal activity (one card in the amounts of 10% of the allowed purchases per year, with no personal creditor cards) to keep the average balances low. Also, keep in mind that credit reporting and credit scores change every few years.
As a general rule, working with a real estate investor allows you the most control over dealings, because theyre experienced with these kinds of transactions. The investor will know what to look for and how to analyze a deal, wont hesitate to walk away from a deal, and will explain in great detail what he means. The investor will understand what you need and what youre looking for, and he or she will go out of their way to find lenders and asset managers who work with creative schemes. The advantage of working with these kinds of investors is that their expertise and their knowledge will help you sell (or sell and rent back) your home, or find quality tenants if you want to sell your property all the time.