7d ago in General discussion
Broken down seller finance structure
1. Property Details
- Property: 123 Main St, Exampletown, USA
- Purchase Price: $200,000
2. Down Payment
- Amount: $20,000 (10% of the purchase price)
- The buyer provides this amount upfront as a down payment, reducing the amount to be financed.
3. Amount to be Financed
- Amount: $180,000 (Purchase Price - Down Payment)
- This is the amount the seller will finance for the buyer.
4. Interest Rate
- Rate: 5% annual interest
- This is the interest rate agreed upon between the buyer and the seller. The rate should be clearly stated in the agreement.
5. Term of the Loan
- Loan Term: 15 years (180 months)
- The length of time over which the buyer will repay the loan.
6. Monthly Payment
- Payment Calculation: Using an amortization schedule, the monthly payment would be approximately $1,419.47.
- This payment covers both principal and interest. You can use an online amortization calculator or a formula to calculate the exact monthly payment.
7. Balloon Payment
- Balloon Payment: $150,000 due in 5 years (at the end of Year 5)
- In this case, the loan is structured with a balloon payment, meaning the buyer will make regular monthly payments but must pay off the remaining balance in full after 5 years.
- The balloon payment is calculated as the remaining balance of the loan after 5 years of payments.
8. Repayment Schedule
- The buyer will make monthly payments of $1,419.47 for 5 years, and then a lump sum balloon payment of $150,000 at the end of Year 5.
- If the buyer is unable to pay the balloon payment at the end of 5 years, the seller may offer a refinancing option or a renegotiation of the loan terms.
9. Late Fees and Default Terms
- Late Fee: $100 if payment is more than 15 days late.
- Default: If the buyer defaults (fails to make payments), the seller may have the right to foreclose on the property, taking ownership.
10. Security/Collateral
- Collateral: The property itself (123 Main St, Exampletown, USA) serves as collateral for the loan.
- In case of default, the seller can initiate foreclosure proceedings to recover the loan balance.
11. Closing Costs
- Both parties agree to cover their own closing costs.
- These costs may include title search fees, recording fees, and attorney fees.
12. Legal Agreement
- The deal should be formalized with a Promissory Note (which outlines the terms of the loan) and a Seller Financing Agreement (which includes the repayment terms, interest rate, and other details).
- The buyer will also sign a Deed of Trust or Mortgage Agreement to secure the loan with the property.
Example Seller Finance Summary:
- Purchase Price: $200,000
- Down Payment: $20,000
- Amount to be Financed: $180,000
- Interest Rate: 5%
- Loan Term: 15 years
- Monthly Payment: $1,419.47
- Balloon Payment: $150,000 due in 5 years
- Late Fee: $100 if more than 15 days late
- Default: Seller can foreclose after missed payments
- Security: Property at 123 Main St
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Broken down seller finance structure
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