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Yesterday we spoke briefly about seller financing. In sum, seller financing is the opportunity for buyers to take advantage of loans from sellers who are in a position to offer financing terms thereby making the home easier to purchase. Specifically, the lease purchase and seller carry financing topic has become more and more prevalent as the difficulty to obtain financing has not eased. Further many of Phoenix AZ real estate buyers are from Canada and are trying to take advantage of the strong Canadian dollar at more than $1.02 US for every Canadian dollar.
Even with this incredibly strong conversion ration, many Canadian buyers still need loans. And, it is very difficult for buyers, or borrowers without a US Social Security number to obtain financing. As a result, I work with a great number of Canadian buyers from Calgary, Edmonton, Toronto and even Montréal who want to buy Scottsdale real estate to help them obtain seller financing for these buyers.
If you were going to make an offer and request seller financing make sure you are using a savvy Scottsdale real estate agent who is experienced in negotiating these offers, understands favorable financing terms and knows the intricacies of the assumption/carryback addendum. On page one of the new Arizona Association of realtors purchase contract you must check the box for assumption carryback addendum included: simultaneously, when submitting the offer you must include the ” Assumption/Carryback Addendum ” :
Line 5 of the addendum 5 notes that additional terms and conditions are included as part of the contract for seller carry back financing.
Lline 7 indicates the loan amount in dollars not percentages. Importantly, line 8 discusses the priority of the loan: first position loan or second lien. This is a critical distinction; if you are not 100% confident what this means and do not feel that your real estate agent has discussed it or explained it sufficiently do not sign this document and call me immediately.
Line 11 discusses payment intervals such as when the first payment is due and whether the payment is made monthly, quarterly, semiannually or annually. I encourage monthly payments thereby notifying both parties if there is a default or challenge with payments sole parties can come to a meeting of the minds and how to resolve this most expediently.
Line 14 discusses account servicing: I highly recommend you use a title or escrow company or account servicing company to manage payments; fees are typically less than $50 per month and can be split between the buyer and seller.
Line 21 discusses loan terms: loans may be amortized over a period of time or interest only. In almost all cases there is a balloon payment meaning the entire loan balance must be paid at a specific date in time. Typically, a seller carry scenario might include a five year loan with interest only for the first six months and the loan must be paid off in five years either by selling the house or replacing the seller financing with cash or a new loan.
Importantly, the seller carryback addendum outlines what happens in the case of late payments and defaults as would any loan you would get from your loaded local mortgage lender as well as a to on sale clause line 34. This is also a critical part of the seller financing addendum. Make sure you understand this clearly whether you are buyer seller: you must understand….. what happens if the buyer wants to sell the property? What happens to the new funds? Does the loan have to be paid off first? Or can the new buyer so the property keep the funds and continue paying on the house? All of this is negotiable; though, I think there are more prudent and safe ways than others that need to be addressed.
Please note. There are other types of seller financing BC besides a seller carry back such as a lease purchase or ‘WRAP’: We will discuss these in the future as they are equally complicated and contain their own intricacies and distinctions.
If you have questions from the viewpoint of a seller and how to protect your interest and equity in a home though make seller financing available please call me at 480-200-9097. If you are buyer, and looking for Phoenix real estate and Scottsdale homes that offer seller financing please call me or e-mail me at DanWexler@Hotmail.com.
Daniel J Wexler – Fountain Hills and Scottsdale real estate consultant, 480-200-9097.
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(all data current as of 7/31/2014)
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