Do you know what seller financing is? This happens when a seller finances his buyer himself, rather than relying on the bank for a loan. Usually, sellers who agree to finance their buyer impose conditions and terms quite similar to those a bank would impose. In fact, they usually ask for a down payment up front, and then interest on the loan. They also have the legal power to initiate a financial recovery in the event of non-payment. This type of agreement can help a buyer with an imperfect credit record to close, since sellers are often less picky than banks. Without further ado, here are our 4 tips for self-financing your Montreal home buyer.
Tip1: Check your background
If you offer financing to your buyer, you won’t have to wait long for an offer. However, you need to ask yourself WHY your buyer is not seeking more traditional bank financing. To protect your investment, you need to zealously investigate your buyer’s financial conditions. Require your buyer to apply for formal financing, and thoroughly research every piece of information they give you, from employer details to other references. You should also do a background check on your buyer and consult his or her credit report. In short, do everything a bank would do before granting a loan to a buyer.
Tipno.2: Draw up a proper contract
Once you’ve found the right buyer, you’ll need to create a legal contract outlining every little detail you’ve discussed. Don’t forget to include the terms of the loan, the amount of the down payment, the interest rates, the payment schedule and what will happen if the contract is not honored. You will also need to issue a promissory bill. This will prove that you are the mortgage lender and give you the right to repossess finance in the event of default. We can’t stress enough how important it is to choose every word and phrase carefully, to ensure the legal value of the contract. Every detail counts, and you don’t want to forget to include one of the loan conditions. A small inaccuracy in the contract could lead to major problems and money losses in the future.
Tipno.3: Make the most of it!
All in all, the process seems to be in the buyer’s favor, who may not be able to obtain a traditional loan from the bank. But why have owners so often chosen this sales method? Well, that’s simply because they too enjoy undeniable advantages! As a lender, you can earn interest on your loan! In most cases, the seller receives far more money by financing the buyer himself. than by selling for a good sum in a single instalment. The longer the loan term, the higher the interest rates. Also, if you change your mind along the way and no longer want to be a lender, you can find an investor willing to take on the situation. However, don’t forget that it all depends on your buyer’s creditworthiness and whether they really intend to pay you on time.
Tipno.4: Follow up closely
If you’re financing your buyer yourself, you’ll quickly discover the importance of managing your paperwork and keeping your accounts up to date. You’ll need to keep a record of each payment, including the date it was made, the amount allocated to taxes or condominium fees, and any other details that may be useful. Hiring a professional to take care of recording income and expenses can save you time and avoid a few minor errors. Also, you could accept different payment methods to make life easier for your buyer and greatly reduce the chances of late payment. Hiring a professional will allow you to delegate your responsibilities and have more free time to do what you love.
