Selling Properties on Seller Financing
The big thing to remember was seller financing is who is your buyer? Is your buyer an investor that will rent the property out or is your buyer an owner occupant?
Investor: if you were selling to another investor it doesn’t matter. Whatever terms you can come up with, and you don’t need to underwrite the buyer. Underwriting the buyer only applies to owner occupant.
Owner Occupant: owner occupant with seller financing is important to understand the Dodd-Frank law. The Dodd-Frank law has to do with the ability to repay on a consumer mortgage.
The Dodd-Frank Wall Street Reform and Consumer Protection Act introduced the Ability-to-Repay (ATR) rule to ensure that lenders make responsible mortgage lending decisions.
Here’s a brief overview:
Ability-to-Repay (ATR) Rule
- Purpose: Requires lenders to make a reasonable, good faith determination that a borrower has the ability to repay their mortgage.
- Qualified Mortgages (QM): Loans that meet certain criteria are considered “Qualified Mortgages,” which provide lenders with legal protections against borrower lawsuits.
- Requirements: Lenders must consider factors like income, assets, employment, credit history, and monthly expenses.
- Protection: Helps protect consumers from risky loans and predatory lending practices.
In essence, the ATR rule aims to ensure that borrowers are not given loans they cannot afford, promoting safer lending practices and protecting consumers.
