If You’re Going to Carry Paper, Read Some Books on Seller Financing
Unfortunately, too many people assume that if there is seller financing involved, there is no underwriting (qualifying) whatsoever . . . that it’s a “free-for-all.” That’s simply not true, unless, of course, you have no idea what you’re doing. <I know – a bit of a stinging remark>
Banks have whole departments dedicated to underwriting (i.e. “making sure this loan makes sense and the reward equals the risk”). Do you remember the stack of loan documents you had to sign when you got your last loan? Don’t you think there might be a reason for that?
When you’re the lender, don’t you want water tight documentation so you can sell for minimum discount on the secondary market? How will you feel when you find out that the boiler plate way escrow/title put your seller carry back note together equates into a loss of thousands of dollars when you go to sell your note?
When you’re a seller that is thinking about becoming the lender, then you’d better consider thinking like one. Better yet, hire your own underwriting department. And make sure that ‘department’ knows what’s going on in the secondary trust deed market (AKA the discounted note business).
At the very least, educate yourself by reading up on the subject. There’s a lot to it, especially if you’re thinking that you might want to sell all or part of your first deed of trust or mortgage on the property.
And if you’re an agent, pay attention!
Just in the last several days, I have talked to two separate sellers (both with homes over $1mil) who are planning to fire their real estate agent(s) because they are uncomfortable with, and unknowledgeable about, seller financing.
You’ll want to read: What You Don’t Know About Notes Can Cost You Listings, Sales and Closed Escrows.