Seller Financing Explained: Wrap Loans, Contract for Deed & Lease Options

Homebuying Journey Intro 0:00 Buying a home is more than just a 0:02 transaction. It's a journey. And for 0:04 many, it can feel overwhelming, 0:06 confusing, and even a little scary. But 0:08 hey, you're not alone. Welcome to From 0:10 Rents to Roots: Home Ownership with Work 0:12 Hard Mortgage, where we share real 0:14 stories from real people who have 0:16 navigated the home buying process. In 0:18 each episode, we sit down with 0:19 first-time home buyers, industry 0:21 experts, and real estate professionals 0:23 to talk about the challenges, surprises, 0:26 and lessons they've learned along the 0:27 way. If you're dreaming of owning a home 0:29 but don't know where to start, you're in 0:31 the right place. Let's dive in. Welcome, Meet Lily Larson 0:34 Lily Larson, to From Rents to Roots, 0:36 where we get to talk about how people 0:38 are able to buy homes. It's a tough 0:40 market and a lot of people are having a 0:42 hard time getting into homes and stuff 0:43 like that. 0:44 Yeah, thank you. 0:44 Hence the podcast, hence why we're here 0:46 and stuff. So, anyhow, thanks Lily for 0:47 coming on and at the invitation of 0:49 Matthew. Matt, so Matthew Young is here 0:51 with me, too. We're excited to have you. 0:52 Yeah, thanks. I'm excited to be here, 0:54 too. 0:54 Yeah. Talk to let's introduce you a 0:56 little bit. talk to us about who you 0:57 are, like why are you here? What's what 0:59 do you do? 1:00 Okay, so I'm my main thing is I'm an 1:02 escro officer. I'm with on record title. 1:05 I've been doing escro officer work for 1:06 about five years almost now. Yeah, 1:10 it'll be five years at the end of the 1:11 summer. Okay. 1:12 And then I've specialized in seller 1:13 finance that entire time. And so I've 1:15 done 1:16 lots of different kinds of transactions 1:17 like contract for deed all inclusive 1:20 lease options. I do some vanilla real 1:22 estate, too. But I really like digging 1:24 into the nitty-gritty of seller finance. Why Title Work 1:26 So before we get into that because 1:27 that's I think bulk of what we'll talk 1:28 about but talk to us about why you title 1:31 in the first place. What got you into 1:32 that industry? 1:33 So I first became interested in real 1:35 estate in high school. I had an investor 1:37 come speak at one of my classes and I 1:39 thought it was really cool that she did 1:41 flips and fixups. 1:42 Yeah. 1:43 So I went up to her and I said, "Hey, I 1:46 think I want to do what you do. How do I 1:48 get into this world?" 1:49 Yeah. How do I do it? 1:49 And she taught me a couple things about 1:51 investing. She was like, honestly, the 1:53 best way for you to learn a lot about 1:55 real estate really quickly is probably 1:56 going to be title because you get to be 1:58 involved in so many transactions really 2:00 fast. 2:01 Yeah. 2:02 I've done probably 1,500 2,000 at this 2:05 point in my career. 2:06 Okay. 2:07 A lot of repetition. 2:08 Lots. Yeah. Oh, yeah. Yeah. I know real 2:10 estate pretty good now at this point. 2:11 So, she was right. You learn pretty 2:13 quick in title. 2:14 Yeah. And so did you always go into 2:16 seller financing stuff then or did you 2:18 or have you like a so out of those 1500 2:20 transactions are most of them quote 2:22 unquote normal transactions where you're 2:23 the escro officer or they the out of the 2:25 box stuff that you're talking about? 2:26 I say I would say probably I don't know 2:29 the exact numbers but 2:30 of course yeah 2:31 at least a third to a half of them being 2:33 seller finance. 2:34 Okay. 2:35 If not more that was so I used to be 2:38 with First Liberty Title. Okay. And that 2:40 was where their main thing is seller 2:42 financing. And so that was the bulk of 2:43 the transactions that we did. Seller Financing Basics 2:45 Okay. So let's dumb it down for me. 2:48 Okay. And everybody else. Talk to me 2:50 about seller financing. What is seller 2:52 financing? Obviously it's in the name, 2:53 but talk to me about what is seller 2:55 financing, I guess. 2:56 Okay. So seller financing, there's a few 2:58 different kinds, but essentially what 2:59 you're doing is the buyer of a property 3:03 pays the seller as if the seller was a 3:04 bank. 3:05 Okay. So sometimes they can just take 3:08 over the mortgage that the seller 3:09 already has on the property. Sometimes 3:10 the seller can set up their own terms 3:12 and set their own interest rate, their 3:14 own monthly payment, and collect from 3:16 the buyer from there. 3:17 Okay. 3:18 So they're basically financing with any 3:19 equity they have in the home. 3:20 Okay. And so why would somebody do that? Buyer Benefits Explained 3:23 Oh, there's so many reasons, Ryan. I 3:26 think the most common thing I see with 3:29 the reason people get into seller 3:30 finance is you can get into a house 3:33 cheaper. You don't have to have you 3:35 don't even have to have 3% down like you 3:38 do with an FHA, let alone 20% like you 3:40 do if you want to avoid mortgage 3:41 insurance. You I've seen people get into 3:44 seller finance deals for as low as 3:47 $10,000 before or even none depending on 3:50 the deal. But that's that doesn't happen 3:51 very often. 3:52 Sure. 3:53 And so it's a lot easier for people to 3:54 get into the property right off. I'm 3:56 speaking from the buyer's perspective 3:58 right now. Yeah. and you get a lot of 4:01 say over your terms. You can pretty much 4:05 set whatever interest rate works best 4:06 for you and the seller. You can I've 4:10 seen people do lots of different 4:11 creative ways to do seller financing. 4:13 You can put anything down as a down 4:14 payment. I've had people put boats down 4:16 as a down payment before. No mortgage 4:18 company's going to do that sort of 4:20 thing. 4:20 You're right. Yeah. And the other most 4:23 common reason I see for seller financing 4:25 is probably people who can't qualify for 4:27 loans at all. Like people who are 4:29 self-employed and they write everything 4:31 off for taxes. If you can't get a loan, 4:33 but you're still making $10,000 a month, 4:36 you can do seller financing pretty much 4:38 without problem. 4:39 Sure. 4:40 Or if there's any families with 4:41 immigration issues and they can't get a 4:43 loan that way, seller financing is a 4:45 wonderful lane for them to go down. 4:47 There are some religions that won't 4:49 allow you to pay interest. So seller 4:51 financing is a beautiful way to avoid 4:53 paying interest depending on the way you 4:54 set up the terms. And it's a wonderful 4:57 route for investors to be able to get 4:58 into properties just because you can 5:01 find people who, let's say somebody 5:04 bought their house in 2021 and now 5:05 they're going into foreclosure. Their 5:07 interest rate's probably around 3%. If 5:10 you want to be able to take over that 5:11 interest rate as an investor, you can go 5:14 find these people whose homes are being 5:15 foreclosed on and say, "Hey, what if I 5:19 give you what if I bring your mortgage 5:20 pay? What if I bring your mortgage 5:22 current? Give you a few thousand extra 5:24 for you to take on your next living 5:26 situation and I take over all your 5:27 mortgage payments, maybe even throwing 5:29 on a couple hundred a month." That's a 5:32 beautiful opportunity for the seller 5:33 who's really in a pickle. and the 5:35 investor gets all the benefits of that 5:37 low interest rate mortgage and any 5:40 equity that the seller currently has in 5:41 the home. Seller Upsides and Cashflow 5:42 Yeah. 5:42 You mentioned the foreclosure. Aside 5:44 from that, if it wasn't a foreclosure, 5:46 what are some other benefits to a seller 5:47 to do seller financing? 5:49 What's nice is it depends on the seller 5:51 situation because definitely not all 5:53 sellers are going to benefit from seller 5:55 financing. But if you have a good amount 5:58 of equity in your home really, I'm I'm 6:01 going to use the same example for 6:02 somebody. Let's say they bought their 6:03 house in 2021. Their interest rate is 6:05 3.5%. And they now, if they sell their 6:09 home, they could be marketing their 6:10 house. Not only can you charge a little 6:12 bit more for a house that has seller 6:14 financing because the buyer purchases 6:17 the property now locking in the price, 6:19 but as the market continues to go up 6:21 over the year, the seller doesn't get 6:22 the benefit of that, the buyer does. So, 6:24 the seller upfront can charge usually up 6:27 to 10% additional on the current market 6:30 value of the home just because of that 6:32 fact alone. 6:33 Yeah. So you get a little bit better for 6:34 price for your home. You can also, as a 6:39 seller, you can collect monthly 6:40 payments. So let's say your mortgage 6:42 payment is currently $1,300. 6:45 Depending on the terms you set with your 6:47 buyer, they could be paying you 24 6:49 $2,500 a month depending on the, of 6:52 course, like the factors of your 6:54 mortgage and what your house costs. But 6:56 then you're making monthly about $1,000 7:01 a month just from selling this home to 7:03 your buyer. You don't have landlord 7:05 responsibilities like you would if you 7:07 rented it out and had tenants. And you 7:11 get to reap these benefits for pretty 7:12 much as long as you want depending on 7:14 how you set the terms or until the buyer 7:16 refinances. 7:17 And it makes sense to me if a seller 7:19 owned the property free and clear then 7:21 they're basically just like the bank 7:23 like you mentioned. Tell us though, are 7:25 there any other rules if they still have 7:26 a mortgage on it and they want to sell 7:28 it and collect the payments themselves 7:30 and still make their mortgage payment? 7:32 Are there any gotchas or any things to 7:34 be aware of when structuring the type of Due On Sale Clause 7:37 a deal? 7:37 Yeah, that's a really good question 7:38 actually. So, the biggest thing you 7:41 probably that that you hear everybody 7:43 say when they talk about seller 7:44 financing if they're wary of it is the 7:47 do on sale clause in most underlying 7:48 mortgages. This clause, as you guys 7:52 probably know, just means that the 7:54 mortgage company can call the loan due 7:55 if you end up selling your property. 7:58 That includes on seller finance. That 8:00 can be a worry for some people, but I 8:03 want to tell you guys why you don't have 8:05 to worry about it very much. 8:07 Yeah, 8:07 it's definitely a way that they can 8:09 exercise. They can they have the right 8:11 to exercise that option, but most 8:13 mortgage companies don't. one because 8:15 they're going to make more money on a 8:17 loan that's actively being paid. And 8:20 two, most of the time it's the servicing 8:22 is their servicing companies involved 8:24 and they also make the most money if 8:27 they're actively servicing loans and not 8:29 just tipping off who they're sending the 8:31 money over to. Hey, these guys sold 8:33 their property. Yes, they're making all 8:35 their payments on time and they have 8:36 been for the last 15, 20 years, but I 8:40 think we should take it away from them 8:41 so that we can get that property. It 8:43 just doesn't really happen that often 8:44 because they're going to make a lot more 8:45 money just by servicing the loan than 8:48 they will trying to get the property 8:50 back, Deal Structures and Protections 8:51 which makes sense. Talk to us about the 8:52 protections that a seller has then and 8:54 the buyer has, you know, as far as what 8:56 protections are in place when you do 8:58 this kind of thing. Is it just a 8:59 handshake and pay you start paying me 9:00 kind of thing? 9:01 Talk to me about the title part 9:02 obviously. 9:03 Okay, so depending on the kind of seller 9:06 finance transaction you do, you have 9:08 different layers of protection. So, I'm 9:11 going to start with a an all-inclusive 9:14 because I think that's a little bit 9:15 easier for people to understand. In an 9:17 all-inclusive, so this is a transaction 9:19 where the seller is lending to the 9:21 buyer. They're financing to the buyer, 9:23 but then the seller also has an 9:24 underlying mortgage. You're including it 9:26 all inclusive or a wraparound. Sometimes 9:28 people call it that as well. In these 9:31 transactions, the vest the vesting the 9:34 title is transferred over to the buyer. 9:36 The house is in the buyer's name, their 9:38 name showing on the county, and the 9:40 seller just puts a all-inclusive trust 9:43 deed on the property in the county 9:46 records. So, it's fairly similar to a 9:48 regular mortgage in the fact that 9:49 there's just the mortgage recorded to 9:51 the county. It's in the buyer's name 9:53 now, and the only way to get out of that 9:56 if the buyer ends up not making their 9:58 payments and they default is a full 10:00 foreclosure, just like how a loan office 10:03 would do. 10:03 Yeah. Then there's two other kinds of 10:07 seller. Then there's a contract for 10:08 deed. This one's a little bit more 10:10 complicated, so buckle up. That's great. 10:12 So, in a contract for deed, the title 10:15 stays in the seller's name. Their name 10:18 shows on title. The buyer, they're 10:20 protected by recording what's called a 10:21 notice of interest to the county. This 10:24 notice of interest references their 10:25 contract that they have with the seller 10:27 and basically makes it so that any title 10:32 company that's doing a search on the 10:33 property will see that there's this 10:34 notice of interest and contact the 10:36 parties involved before finishing any 10:39 transaction. So, the seller can't sell 10:41 the property behind the buyer's back 10:43 without the buyer being notified because 10:45 of this notice of interest. and the 10:47 buyer can't sell the property and not 10:49 pay off the seller because the seller's 10:51 name is still on the property. One way 10:53 some people think about it sometimes is 10:55 like when you get a car loan, the 10:57 mortgage, the company that's holding 10:59 that gives you the loan. 11:01 Okay. 11:01 Yeah. They hold the title. 11:03 Yeah. 11:03 It's still your car. You have all the 11:05 rights to the car, but the person who's 11:07 lending you the money is the one holding 11:09 title until you pay them off. It's a 11:11 similar idea to that except it's with 11:12 the home. 11:13 Okay. 11:14 Does that make sense? 11:15 Yeah. a good explanation. 11:17 Thank you. 11:19 Good job. 11:19 Cuz it's a little hard for people to 11:21 wrap their heads around sometimes. 11:22 The car example is a good that makes 11:24 sense. Yeah. 11:24 A lot of people that's what most people 11:26 have interaction with is that that's why 11:29 a lot of people mistakenly think when 11:31 they pay off their home they're going to 11:32 get a title in the mail or something 11:34 like that. And really, no, you've 11:35 already had title the whole title 11:37 kind of thing. It's just now there's no 11:38 lead, right? So again, that's a mistaken 11:40 thing that I think a lot of people have 11:42 with title and stuff because again, most 11:43 of people's interactions are with cars 11:45 and any but yeah. 11:47 Yeah. The only way to get out of the so 11:50 if your buyer defaults on a contract for 11:51 deed and this one's great for sellers. 11:54 You do what's called a forfeite and this 11:56 usually takes 30 to 45 days to get the 11:59 buyer out of the property. It's a lot 12:00 more simple than a foreclosure. You 12:02 don't have to send it to a trustee sale. 12:04 You can actually just take the property 12:06 back. 12:07 Yeah. Okay. Was there a third one then Lease Options Pitfalls 12:09 too? 12:10 I wanted to throw in lease options in 12:12 there too because they're a form of 12:13 seller financing, but those ones they're 12:16 it's similar enough to renting that if 12:17 you understand renting, the only way to 12:19 get the buyer out of that one would be 12:21 like an an eviction like you would just 12:23 with a renter. So, 12:24 because a lease option, just to explain, 12:26 is where somebody's rent, they're 12:27 essentially paying rent, but they have 12:28 the option to buy, right? Is that is 12:30 there any other recorded things on the 12:32 house? Is it just more of a contract and 12:34 then 12:35 lease options? I've seen people record a 12:37 notice of interest or a notice of lease 12:39 option. It's not that common. You pro 12:41 you have to be pretty real estate savvy 12:43 to know to do that sort of thing. If I 12:44 was in a lease option, I would probably 12:47 record something to the county so I can 12:48 make sure that doesn't just get swept 12:50 under the rug. 12:50 Sure. 12:51 But it Yeah, it's pretty similar to 12:54 renting. I feel like you're just more 12:56 locked in. 12:57 Sure. 12:57 You can still build some equity with it. 12:59 It's like the in between of renting and 13:02 a contract for deed is the lease option 13:04 to purchase. 13:05 Okay. Yeah. 13:06 Okay. 13:06 I've heard that sometimes it's not as 13:08 good for buyers lease. It's better for 13:10 sellers because I most people that do a 13:13 lease option don't end up exercising 13:15 their right to to buy. And so if they 13:18 put 10,000 down as a deposit to have 13:20 that thing, typically the seller just 13:22 ends up pocketing that because that 13:24 person doesn't always buy it. Is that 13:25 true or not true? 13:26 That is true. But also most buyers don't 13:28 realize that they can sell their option 13:30 to somebody. 13:31 Oh, okay. 13:31 Yeah. Like I I know of investors who 13:35 will purchase lease options because they 13:38 can then they only have to give the 13:40 buyer back their deposit plus a little 13:42 bit more because they put some money 13:44 into the home and then they get that 13:46 option. The price is usually still 13:50 pretty locked in from when they started 13:52 that lease option with the seller. So 13:53 they might be getting some sort of 13:54 discount on the home. It's usually 13:56 something that not very many people talk 13:58 about. Most buyers don't know that they 14:00 can sell their lease option, which I 14:02 think is a tragedy because you don't 14:05 have to lose your $10,000 that you put 14:07 into this home. You just have to know 14:09 the right people to sell it to. Down Payments Reality Check 14:10 So, I'm thinking of a scenario, and tell 14:12 me if this is happens often and how it 14:14 works, but first-time home buyer, so 14:17 somebody who's maybe not wanting to put 14:19 a lot of money down, but in my mind, the 14:21 seller probably wants maybe a good 14:23 amount upfront and then they're willing 14:25 to take payments for a while. So, how do 14:27 you see that working out? Say, say the 14:30 seller wants 20 or 30,000 and the buyer 14:32 only has 5 to 10,000 or something. Is 14:35 that a common scenario or how do you see 14:37 a lot of first-time buyer seller 14:39 financing deals being structured? Well, 14:42 it really depends on what kind of 14:43 agreement you can come to because if a 14:45 buyer I would say that most of the time, 14:48 unless you find yourself in a really 14:50 lucky situation, you as the buyer are 14:52 not going to be able to put just $5,000 14:55 $5,000 down on a seller finance home, I 14:57 would say usually around the 20 to 14:59 30,000 is is roughly where you're 15:02 looking at. 15:02 Okay? 15:03 And if the seller needs more down for 15:05 any reason and the buyer can't provide 15:06 that, they probably just have to find a 15:08 new buyer. It's not. Seller finance is a 15:11 great option instead of having to put 15:14 60,000 or 70 or 80,000 down or more 15:17 sometimes, 15:18 especially if you want to avoid mortgage 15:20 insurance. 15:21 But 20 to 30,000 substantially less than 15:24 those. I would Yeah, I would say it'd be 15:26 pretty hard for a buyer to still get 15:28 into a seller finance for 5,000, but 15:29 it's not impossible. You just you would 15:31 have to do some digging. And I don't 15:34 think those would be the kinds of deals 15:35 that are just on the MLS. Not an 15:38 everyday find thing. Finding Seller Finance Deals 15:40 Yeah. 15:40 Where do people find So, a lot of people 15:42 are, "Okay, hey, great. Seller 15:43 financing. It sounds great." How do they 15:45 even find these? 15:46 So, it depends. So, from the buyer's 15:50 perspective, cuz as a seller, you can 15:53 just put it out on the MLS. You can put 15:55 it everywhere. From the buyer's 15:57 perspective, there's a couple different 15:58 ways. You can find decent deals on the 16:00 MLS. I know some agents who do a lot of 16:03 seller finance. You can find some okay 16:05 deals on the MLS, but if you want to use 16:09 it for investing purposes or even just 16:12 really trying to get a good deal on a 16:13 home, I think the best place to look is 16:15 notice of default lists and foreclosure 16:18 lists because usually those people 16:21 aren't more than $20,000 16:25 in. And so if you have $30 to $40,000, 16:29 you can put some of that down towards 16:31 this seller that you found who's in a 16:33 pretty desperate situation and give them 16:36 a little bit extra. Or if they're if 16:38 you're able to negotiate without using 16:39 that, you can use some of that to fix 16:41 the house a little bit, make it a little 16:42 bit prettier, and then put it right back 16:44 on the market again. And all of a 16:45 sudden, you flipped a house for really 16:47 not that much money. 16:48 Sure. 16:49 You don't have to go to a hard money 16:50 lender. You can use the seller's 16:52 mortgage. 16:53 Okay. And I'm thinking of real estate Agent Help and Wild Stories 16:55 agents. If a real estate agent isn't 16:57 super familiar with seller financing, 17:00 what services or do you offer something 17:02 to help them or to guide them if if 17:04 they're wanting to structure a seller 17:06 financing deal? 17:07 I'm wanting to get to the point where 17:08 I'm teaching classes, but I'm not 17:10 certified yet. So, that is to come. But 17:13 otherwise, I have sat on the phone with 17:16 real estate agents before while they 17:18 write their seller finance contracts. 17:20 That's something that's a pretty big 17:21 part of my job actually is help walk 17:23 people through as they're doing them so 17:25 they make sure they do them the right 17:26 way. You could talk to a real estate 17:28 attorney, but they would probably charge 17:30 you. And most seller finance deals are 17:32 so situational that you got to just make 17:36 sure you have you would either have to 17:38 have that attorney for most of them so 17:41 that you would be able to ask them the 17:43 really specific questions or if you have 17:45 a good escro officer that knows how to 17:48 do them and can help you set it up. 17:50 That's probably the cheaper option. And 17:52 then once I have the file, it's really 17:53 easy for me to just go ahead and finish 17:55 it up because I already I've already 17:57 helped. I already know everything about 17:58 it at that point. That makes sense. That 18:00 makes sense. Have you seen any crazy 18:02 scenarios in your time? 1500 18:04 transactions. Any any crazy scenarios 18:07 stand out or 18:08 crazy? I've seen crazy is a hard word to 18:11 match, but the weirdest, not weirdest, 18:14 but the most interesting ones I've seen 18:16 is when I've seen some people do, and 18:19 these ones are somewhat risky depending 18:22 on your role in the situation. But I've 18:24 seen people do, like I said, I've seen 18:27 people put down like personal property 18:29 as a part of a down payment. That's 18:30 probably one of the craziest things I've 18:32 seen. But then also sometimes I've seen 18:36 people like if the if a seller is in 18:39 trouble, an investor will buy it from 18:41 them on seller finance or just 18:44 traditionally and then sell it back to 18:46 them on seller finance as a rescue to 18:48 get them a little bit more money. That 18:50 one you have to be really picky about 18:52 the terms, but I've seen that happen a 18:53 couple times. Anything else weird? This 18:57 is something I saw one time. An investor 19:00 I'm pretty close with. He sold to 19:03 somebody on a contract for deed and they 19:06 apparently went in and did a bunch of 19:07 illegal construction work on the 19:09 property. 19:10 Okay. 19:10 And then when he took it back with the 19:13 forfeite cuz they ended up defaulting on 19:15 their payments, he had a lot of stuff to 19:19 fix before he could get the property out 19:22 there and sold again. 19:23 Sure. So, I guess that's just another 19:25 risk you run as a seller is if you do 19:29 eventually end up taking the property 19:30 back, the ma buyer may have done some 19:33 wild stuff to it. 19:35 Sure. Because technically it was theirs. 19:36 It was theirs. 19:37 Yeah. 19:38 Even if they Yes. But if they don't get 19:40 permits from the city, anyone can do 19:42 anything. 19:42 Sure. 19:43 Yep. 19:44 Are there any protections that you can 19:46 take against that or is that like you 19:48 say just a risk that that you're willing 19:50 to accept? The good news is you keep 19:52 their entire down payment and all the 19:54 monthly payments they've made up until 19:56 they defaulted. So you have that 19:58 financial cushion. Otherwise, you could 20:01 take people to court, but it might be at 20:04 that point just having the property 20:06 back. It might it in this situation 20:08 where they didn't get permits, you'd 20:09 probably just have to go to the city and 20:12 figure out ways to make sure you get in 20:15 compliance with them again, which 20:18 depending on the damage could be a 20:20 chore, but I don't think it would really 20:22 be like all that bad. 20:25 Sure. 20:25 I'll say unless your buyer's doing meth 20:27 in the property or burns it down or 20:30 something. 20:30 Sure. Okay. And what parts of the Servicing Payments After Close 20:32 process then would you as a title agent 20:35 be involved in? Obviously initially, but 20:38 if anything does go south, do you get 20:40 involved again or what what parts are 20:42 you usually involved in? 20:44 I'm usually involved. So, I'll if an 20:47 agent is experienced, they'll bring me 20:48 the finished purchase contract with the 20:51 seller finance addendums and then I just 20:53 draft the final either the mortgage 20:55 document or the contract for deed and do 20:59 my regular title stuff from there. I 21:02 don't usually assist with anything 21:05 afterwards. So, this is something I 21:07 didn't mention. This is actually a 21:08 really big part of seller finance. 21:10 There's escrow companies that help 21:13 service these seller finance accounts. 21:15 Okay? 21:15 They are the ones that collect the 21:17 payments from the buyer and send them 21:18 out. You This is an optional thing. So, 21:20 not all sellers do it, but they're not 21:23 really all that expensive and they keep 21:25 track of all of your deals if you have 21:26 multiple seller finances. So, I usually 21:29 recommend people to work with one. They 21:31 are the ones who will let you know if 21:32 you're buyers in default so that you can 21:35 contact any sort of real estate law firm 21:38 and then they can do the foreclosure. 21:40 And in Utah, do I remember right, that 21:42 the title company cannot be the escro 21:45 company as well? 21:46 No, just because of the way our 21:49 insurance laws work. If we're going to 21:52 be holding and sending out money, we 21:54 have to be insuring the property with 21:55 title insurance, and that only goes up 21:57 until the day that the property sold. So 22:00 every everything moneywise that's being 22:01 handled afterwards has to be a separate 22:03 company. Okay. 22:05 As far as you mentioned a lot of the 22:06 transactions you're doing as seller 22:08 financing. Is the buyer mostly investors 22:11 or mostly quote unquote normal people? 22:13 Primary res. 22:14 I see a mix of both. 22:15 Okay. 22:16 I think it would be more normal people 22:18 if more agents were educated on it, if 22:21 more title companies did it because 22:22 there's really not very many who will 22:24 touch seller financing. 22:25 True. And so the bulk of what I see is 22:28 investors because they're out there 22:30 trying to get the difficult deals that 22:33 aren't just on the MLS. Yeah. 22:35 And 22:36 that's typically where the money's at, 22:37 right? You know, once it's on the 22:38 market, everybody sees it. That's that's 22:40 the market, right? 22:41 Exactly. 22:41 And so if you can get things before they 22:43 hit the market, you can typically get a 22:44 better deal. Is it 22:45 So usually investors and then people who 22:48 can't qualify for mortgages because most 22:51 people just know, oh, when you buy a 22:53 house, you have to get a mortgage. And 22:55 so if they don't have to dig deeper than 22:56 that, they don't usually. 22:59 Sure. Sure. This has been great to get 23:01 to understand seller financing. 23:03 Obviously, it's a a mystery to a lot of 23:05 people like you said, but it is 23:06 a lot of people don't totally understand 23:08 what it is and it's nice. Obviously, 23:09 we're a mortgage company. We are not 23:11 involved in a seller financing and but 23:13 maybe on the or you were going to speak 23:15 maybe are we at some point 23:16 honestly. So, what I will tell a lot of 23:18 sellers to do, especially if this is 23:20 their first time doing seller finance 23:21 and they need to be able to get into 23:23 another home after selling their home on 23:25 seller finance, they I'll advise them to 23:28 talk with a loan officer to figure out 23:30 how they can structure the seller 23:31 finance deal in order to put like the 23:34 monthly payments towards their new 23:36 qualification, like their current loan 23:39 application. Sure. 23:40 Or if there's ways that they can cuz 23:42 your old mortgage is still going to be 23:44 showing. I don't know all the ins and 23:46 outs of lending, which is why I have 23:47 people talk to them. Yeah. 23:48 To you guys. But there I like loan 23:51 officers who work with the seller on 23:53 getting it set up are usually the ones 23:55 that are also helping with the 23:57 refinances later on. So, you're not 23:59 really involved in the onset, but you 24:02 can still get business from knowing 24:04 about seller financing. Okay, 24:05 that's good. And I suppose maybe pulling 24:08 out cash ahead of like if they're 24:09 because the reason most people sell is 24:11 because I'm going to take that $100,000 24:13 and put it into the next house, right? 24:15 Because I don't have a down payment. 24:16 Otherwise, most people don't have a down 24:18 payment. It's all tied up in that house, 24:20 right? And so again, I have to sell it 24:21 to get it. 24:22 But I guess in this scenario, if I do 24:24 seller financing, then hey, maybe before 24:26 I do that, I want to do some kind of 24:28 cash out refinance or a heliloc or 24:30 something like that so I can try to pull 24:31 out some cash to be able to put that on 24:33 the next house. 24:34 That is that's an option. It depends on 24:36 then at that point if you can make your 24:38 terms for seller finance still 24:41 competitive with the rest of the market. 24:44 Sure. 24:44 Cuz if you refinance and then all of a 24:46 sudden your interest rate is 6.5%. 24:48 Then you can't really it's harder for 24:51 buyers to swallow. Sometimes they will, 24:53 but it's harder for buyers to swallow 24:54 paying above the current interest rates 24:57 in the market. 24:58 For sure. 24:58 And so it just makes your house a little 25:00 bit less competitive competitive as a 25:02 seller. Yeah. But if you need the cash 25:03 and you still want some monthly cash 25:05 flow and you think that you're able to 25:06 do that sort of thing, then that's 25:08 definitely an option. Okay, 25:11 perfect. Is there anything we didn't 25:12 cover that you wanted to cover? 25:14 I think we got through a good chunk of 25:15 it. I mean, 25:16 I think we hit a lot of highlights. 25:17 Yeah, Adam, Matthew, do you have any Keeping Low Rate Strategy 25:19 other questions or 25:19 No, I'm I'm kind of thinking we talked 25:21 to a lot of sellers that are homeowners 25:23 that have a low interest rate and 25:25 they're like, "Oh, I don't ever want to 25:26 move or I don't ever want to sell cuz 25:28 I've got this low interest rate." So, if 25:29 somebody does want to move, but they 25:32 want to keep that low interest rate, 25:34 tell me a little bit more. I think you 25:36 mentioned this already, but if they have 25:37 say a 3% interest rate and they want to 25:39 charge of, can they do that and make 25:41 make a profit if you will on on that 25:43 side too? 25:44 Absolutely. And the way that I'll have 25:47 I'll teach agents how to sell it to 25:48 their sellers cuz that's a skill in and 25:51 of itself is if you let's say you do 25:54 have a 3% interest rate and you're 25:56 looking at the interest rates right now. 25:57 You're like, "Oh, I really need just a 25:59 bigger property because I I have more 26:01 kids now or whatever's happened." By 26:05 selling your home on seller financing, 26:06 with receiving those monthly payments, 26:08 you can effectively transfer your 26:10 interest rate over just because you're 26:12 making enough money from your previous 26:13 property that it's it's as if your 26:16 interest rate was a lower amount. I have 26:18 a calculator set up to figure out what 26:20 those exact numbers are. So, if anyone 26:22 wants to look at what their new 26:24 effective interest rate would be, that's 26:26 something that we can play with. But 26:28 yeah, it's changing the mindset of 26:29 sellers where yes, you might have a 26:32 higher interest rate again, but 26:34 effectively it's the same or lower 26:36 because now you're making a pretty 26:39 substantial monthly payment or a monthly 26:41 income. 26:42 Perfect. 26:43 Good. Well, thank you again. 26:44 No, thank you guys. I'm really glad I 26:46 got to be here and talk about seller 26:47 finance. It's my favorite thing to talk 26:48 about. 26:49 We can tell you know a lot about it, 26:50 too. It's it's obviously for anything 26:52 you always want an expert and it's good 26:54 to know you are that person. Hopefully 26:56 anybody listening knows. Hey, Lily 26:58 Larson. She's at what name of title 27:00 company again? 27:01 So, I'm with On Record Title and I have 27:03 lots of resource for anyone interested 27:05 in getting into seller finance. So, 27:07 yeah, let me know. I want to help you 27:09 succeed. 27:09 Okay, perfect. Thanks, Lily. Appreciate 27:11 you coming on. 27:12 Thanks, Ryan. Thanks, Matthew. Wrap Up and Next Steps 27:14 Thank you. 27:14 Thanks for tuning in to From Rents to 27:16 Roots. I hope today's episode gave you 27:18 insight, confidence, and maybe even a 27:20 little inspiration on your home 27:22 ownership journey. If you enjoyed this 27:24 episode, make sure to subscribe, leave a 27:26 review, and share it with someone who 27:27 might find it helpful. And if you're 27:29 ready to take the next step in buying a 27:31 home, or just have questions, reach out 27:33 to me or my team at Workhard Mortgage. 27:36 We'd love to help you on your path to 27:37 home ownership. Until next time, keep 27:39 working hard, keep building your future, 27:41 and we'll see you