| Buying and selling real estate notes and land contracts | | | | establish or improve their FICO score. |
| can be financially rewarding for all parties involved. | | | | Sellers who engage in real estate financing must |
| Real estate notes are used to record transfer of | | | | engage in due diligence by obtaining a current credit |
| property between sellers and buyers. Often referred | | | | report and background check of potential buyers. |
| to as 'real estate receivables', these contracts are | | | | Financial experts recommend working with buyers |
| commonly used when sellers provide seller carry back | | | | who possess a FICO score of at least 600. This is |
| financing. | | | | especially important if sellers plan to sell land contracts |
| When seller carry back financing is utilized, real estate | | | | to a real estate investor at a later date. |
| notes and land contracts should be executed by a real | | | | The majority of buyers who seek out seller carry |
| estate attorney. At minimum, a lawyer should be | | | | back mortgage arrangements are usually credit |
| retained to review contracts to ensure they will be | | | | challenged. When sellers offer short term financing |
| upheld in a court of law if either party defaults on the | | | | they provide buyers with the opportunity to clear |
| agreement. | | | | derogatory credit by making mortgage payments on |
| Real estate investors who buy notes should be aware | | | | time. However, working with poor credit buyers can |
| of various strategies to maximize their return on | | | | lead to eviction or foreclosure. |
| investment. Realty receivables are valuables assets | | | | When investors purchase real estate notes and land |
| which can be sold in whole or part to obtain additional | | | | contracts they must give careful consideration to risk |
| investment funds. | | | | factors of poor credit buyers. Investors generally offer |
| When sellers provide private real estate financing they | | | | less money to purchase real estate notes when |
| must adhere to state and federal laws. Buyers who | | | | buyers have low credit scores. |
| enter into seller carry back mortgages should be | | | | Another factor to consider when offering seller carry |
| prepared to provide a minimum down payment of | | | | back financing is real estate contracts must comply |
| 10-percent for residential real estate and up to | | | | with state usury laws. Usury laws regulate the amount |
| 30-percent for commercial real estate. | | | | of interest which can be charged against private loans. |
| Rarely do sellers carry back 100-percent of financing. | | | | Private lenders are required to assess a lower rate of |
| In most cases, sellers carry between 10- and | | | | interest than mortgage lenders. |
| 50-percent of the purchase price and require buyers | | | | Charging a higher rate of interest is a criminal offense |
| to obtain a conventional loan for the balance. When | | | | and can result in incarceration. When offering seller |
| sellers offer full financing, real estate contracts typically | | | | carry back financing be certain to understand usury |
| extend for three to five years to allow buyers time to | | | | laws and lending limits. |