How to Structure of Seller Financed Note

With today's ongoing struggles within the mortgage industry, you will see more seller financed deals than ever. I will attempt to provide some details on how to structure a seller financed note.

Notes are merely a promise to pay a certain price, for a period of time, and other certain conditions surrounding the sale of an asset, whether a home, car, boat etc. Notes are also called land contracts, deeds of trust and are considered mortgages.

Before entering into a contract, make sure that you consult an attorney for the proper language, because there are several different types on the Internet. Certain land contracts or deeds of trust slant either in the favor of the seller or buyer. If you are the seller, you certainly want one that slant in your favor.

Do not sell your home or sign any contracts or deeds of trusts until you properly checkout your buyers credit. When selling on land contract of deed of trust, you must think like a banker for resale (selling your note) purpose or to protect your own interest in the sale.

Our own requirements for approving someone for a land contract are 1. a minimum credit score of 625 (this was just raised due to the mortgage crisis) 2. Employment history 3. Bank or credit union information, minimum 5% down payment (Michigan) more in other states and 4. ability to set up payroll deductions or direct deposit for monthly payments.

You should also be prepared to hold a second mortgage for at least 5% of the total sale. This is very similar to a regular loan program called a 90/5/5 or 90% first mortgage, 5% down payment, 5% seller second. This is the least you should go, more preferable is an 80/10/10 in which the first mortgage is for 80%, buyer down payment of 10% and seller second of 10%.

Do not create a note or mortgage with the intent of quickly selling it for full price, the more seasoned the note is, the more you are likely to receive if you do sell at a later date. Also note that flips are not generally a good idea either, check into this before you use notes as a means to flipping houses.

No reasonable person enters into a seller financed deal with the intention of getting the property back or not needing a lump sum of cash in the future. You must structure your seller financed note or mortgage in a fashion that protects you, you assets and your ability to sell your note at a reasonable price, if needed.

If you are a realtor, the more you know about notes as an alternative to conventional financing, the more homes you are likely to sell, especially if you dealt in the sub-prime market in the past.

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