You have decided that you are going to offer Owner Financing with the sale of your home or business; here are some pointers to think about when creating a note that will make it attractive to buyer’s(investors) should you later need to sell your note and get the cash you need, but also protect your interests if you decide to hold onto it.
* Down Payment – You need to get a good down payment to build equity in the note and give the buyer of the property more incentive hold his end of the agreement. This means at least 15% for a standard house, and 20-30% for commercial properties, and land. These numbers cannot always be reached, so try to get as much as you can without putting the buyer into a financially precarious position.
* Buyer’s Credit Score – Try to sell to a buyer with decent credit score; a credit score of 625 or greater is preferable. Investors will often buy a note with a credit score below 600 but be prepared for a deeper discount. It is important to recognize that a low credit score does not always represent the buyer’s ability to make timely payments, as the low score could be due to a host of reasons that are easily remedied. If you do sell to a buyer that has a less than average credit and you are going to hold on to the note for a while, be sure to report the loan to the credit agencies on a regular basis; if the buyer(payor) is making timely payments this activity will reflect favorably on the buyer’s credit score and more money for you should you decide to sell the note in the future.
* Interest Rate – A competitive interest rate is important because it will make it easy for the buyer to purchase the note and yield the desired profit without much of a discount to the note holder. Make sure that the interest rate being charged is at a minimum 8%, 10% is what I recommend. — R E Young
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