Section 5: Financing Documents Unit 4: Seller Financing

Wendy is buying a house from Tom. Tom helps Wendy out by paying for a 2-1 buydown. The lender has given Wendy an interest rate of 5%. Which of the following describes what the buydown will do to Wendy's interest rate?

Her rate will be 3% for the first year, 4% the second year, and 5% after that.

A seller is offering a second loan to help the buyer with her down payment via a contract for deed. Why might the buyer's lender have an issue with this?

Lenders don't like a contract for deed arrangements.

Ralph and Mort are neighbors. Ralph is selling, Mort is buying, and Ralph is offering a second loan to help Mort with his down payment, using a contract for deed. When Mort presents this idea to his lender, his lender balks. Why might that be?

Lenders don't like contract for deed arrangements.

Lisa, a seller, is providing Darwin, a buyer, with a seller second on the purchase of her property. Darwin's conventional lender uses a note with deed of trust to secure the first loan. What instrument is Lisa most likely to use for her second loan with Darwin?

Note with deed of trust

Jacob is selling his unencumbered property to Shem and is acting as lender in the transaction. Which type(s) of finance instrument can Jacob use for the loan agreement?

Note with mortgage, note with deed of trust, or contract for deed

When a real estate transaction is financed using a contract for deed, what advice should real estate agents give to their clients?

Have an attorney review the contract.

purchase money loan

Seller financing, whether it's a first or second loan, and whether it uses a mortgage or a deed of trust

carryback loan

refers to a second loan that supplements an institutional loan.

Which of these statements about a buydown is true?

A permanent buydown will cost more than a temporary buydown.

Billy is an investor who is now selling a two-bedroom house that he bought at a foreclosure sale. Amanda would like to buy it, but she's self-employed and has a poor credit rating. The bank won't give her a loan. Billy reviews Amanda's financial situation and feels confident that she's a good risk, so he offers to extend her credit for the purchase in the form of a contract for deed. Amanda agrees, and they prepare to sign. What issues should Billy be aware of?

- Amanda could damage the property in ways that reduce its value and then default, leaving Billy with a possibly unsaleable property. - Amanda could cause an involuntary lien to be taken against the property. - Amanda could sell her interest in the property without Billy's consent. - Amanda could neglect to pay property taxes or hazard insurance.

Meanwhile, Amanda is happy that she's able to buy the house, but she's aware that there are some risks attached to her loan agreement with Billy. What issues should Amanda be aware of so she can take steps to protect herself?

- If she misses a payment, Billy could cancel the contract and she could lose both the property and everything she's paid to Billy. - Billy could encumber the property with liens that would need to be cleared before title could transfer to Amanda. - If Amanda doesn't keep the property insured, Billy could cancel the contract and she could lose both the property and everything she's paid to Billy. - If Amanda doesn't pay the property taxes on time, Billy could cancel the contract and she could lose both the property and everything she's paid to Billy.

Babs is buying Kirk's property. Babs needs help with the down payment, and Kirk offers to supplement Babs' bank loan with a second loan, allowing her to meet her lender's down payment requirements. Which finance instrument(s) may be used for the agreement between Babs and Kirk?

Mortgage or deed of trust

Gertrude is buying Sam's house, and Sam has agreed to finance the purchase. Gertrude is aware that a seller-financed transaction creates certain risks for her that a conventional loan wouldn't. Which of the following is an issue that Gertrude is protected from via her loan agreement?

Sam could sell the property to another person at any time, canceling Gertrude's equitable interest in the property and her right to possess it.

Melanie is a buyer who has agreed to purchase Stan's property using a contract for deed. Who holds legal title to the property during the term of the loan?

Stan

Bob is selling a four-bedroom house that he bought as an investment property. Victoria would like to buy it, but she has a low credit rating and can't find a bank that will offer her a loan. After reviewing Victoria's financial situation, Bob feels confident that she's an acceptable risk. He offers to extend her a line of credit for the purchase in the form of a contract for deed. What issue should Bob be aware of?

Victoria could cause an involuntary lien to be placed on the property.

Which of the following is a potential concern of a buyer who's entering into a contract for deed with a seller?

The buyer could lose the property after missing only one mortgage payment.