Seller financing is perhaps one of the most lucrative options for home sellers not just in Las Vegas, but also in several other parts of the country. It allows a seller to seize an opportunity, quickly close on a real estate deal, and get more out of a property in the long run, so if you are someone planning to sell your home, knowing how to structure a seller financing deal is a huge must.
What is Seller Financing?
In a nutshell, seller financing is when the homeowner (the seller) becomes the lender and extends a loan to a buyer to cover the purchase of the housing. However, the buyer still has to settle the down payment and pay the loan regularly, including interest.
Details like the interest rate, repayment amount, down payment amount, and the buyer’s commitment or “promise” to pay are listed in a promissory note which both parties need to sign.
Take note that seller financing is a short-term type of loan usually lasting for only five years. After such time, the buyer is expected to have become financially stable enough to refinance their loan from banks or traditional lenders. After all, no seller wants to wait for 30 years just to get their money.
4 Tips on How to Structure a Seller Financing Deal
1. Get expert help.
It doesn’t take much brainwork to understand seller financing since it’s a simple concept, but setting it up is a different story and can be quite complicated especially for those who are new in real estate. To ensure you do it properly, consider getting help from a real estate lawyer in structuring the deal and a tax professional in making the numbers benefit you.
2. Draft a promissory note.
Like a lease, a promissory note is a legal document that details the terms of the real estate deal. The main part, of course, is the buyer’s promise to pay, but a promissory note also includes the terms, repayment amount, interest rate, consequences of non-payment, and the down payment amount.
Also, it’s a good idea to use your home as collateral in the promissory note. That way, you get to keep your home if the buyer defaults on the payments.
3. Collect a down payment.
You can choose not to require a down payment, but asking for one secures the deal a little more. Buyers are less likely to go back on the deal once they’ve paid a down payment and if they do, you get to keep it. As for how much, 10% is the average so try aiming for more than that.
4. Decide on interest charges.
Just because you’re the lender in this scenario and can charge as much as you want doesn’t mean you have to be a loan shark. Shoot for an interest rate that is close to what banks in Las Vegas charge, but a little higher. It has to be a reasonable amount; otherwise, it’s only going to drive buyers away.
If you need more information or assistance on structuring a seller financing deal for your home, feel free to call or visit us here at LVRE. Our experienced brokers will be glad to answer your inquiries and provide expert help on anything about the Las Vegas real estate market.