BEWARE SELLER FINANCING

11/07/2008

By Sarah Norton


Because lending guidelines are tightening, buyers and sellers are once again getting creative with the financial piece of a real estate transaction. As a newer broker, I hear a lot of stories from those that were in the business in the 1980s about how interest rates were up to 18% so people had to get creative with financing. There were a lot of sellers carrying notes because that was the only way that they could find a buyer. Now, although money is still cheap to borrow (with interest rates hovering around 6%), not all buyers can qualify for conventional loans. So there might be potentially an increase in seller financing in the coming years.

As real estate agents, we are not attorneys or financial planners so we cannot give you advice on what to do in seller financing. However, there are some points about seller financing that you should ask yourself and a legal advisor when considering this option. When Mr. Seller is considering lending money to Mr. Buyer- he should ask himself these questions-

Why won't a conventional bank lend to Mr. Buyer? What is Mr. Buyer's credit score, employment history and prospect, additional assets? What is the value of the home and is the market in the neighborhood declining or inclining? How much cash does Mr. Buyer have to put down? What are Mr. Buyer's other debts and how long does he have to pay them off? If you feel comfortable with the answers to these questions, talk to an attorney about your options. It might be a good way to make guaranteed interest on your money.

Categories: Real Estate
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