5 Tips for a Successful Seller Finance Process

Now that you have decided seller financing is the best way for you to go to sell your home, what do you do now? If done right, the seller financing process can be completed quickly, easily and safely. Use these five tips as a guide to make your seller financing experience as easy as possible.

1. Get professional help. Even though you are cutting out the lending institution, there are still other professionals you'll need during the seller financing process. The seller and buyer may each need a real estate attorney or agent to draw up the sale contract and promissory note and any other legal documents required for the transaction. You may also want to speak to and work with a tax or financial advisor about the taxes reported and paid on the property.


2. Obtain a loan application from the borrower. One of the first things you need to do to start the process is to get the borrower to complete a loan application. Similar to a bank or mortgage lender, you'll use the information provided on the application to run a credit check, verify employment, confirm bank and brokerage accounts, and check references.

3. Make it contingent. Hiring an attorney to draw up the contract ensures all of these points are covered, but if you use a standard contract or create the contract on your own, make sure you put a financial contingency in the agreement. This means that you as the seller have to approve the buyer's finances before agreeing to the seller financing arrangement. The agreement also spells out the terms and conditions including the loan amount, interest rate and term of the mortgage.

4. Make sure it's a secured loan. It's imperative that the agreement also spells out that the mortgage is secured by the property. This protects you in case the borrower defaults on the loan because it entitles you to foreclose on the home to recoup your costs.

5. Require a down payment. Make sure to get some kind of a down payment from the borrower. The reason for this is twofold. First, it provides you with a cushion against the risk of losing your investment. Second, it creates a vested interest in the property for the buyer--making it less likely that they'll walk away from the deal. It is suggested that you obtain at least 10 percent of the purchase price in the form of a down payment.

When done right, the seller financing process can be completed quickly and easily. Stick to these five tips and you'll ensure that your seller financing experience is as easy as possible.