How heavily you screen your buyers depends on how much cash they’ve got to work with. Buyers with lots of cash are much more committed to the deal, as you might expect, and thus we’re less picky about their problem(s). However, we advertise “no credit check,” and “no qualifying” when we sell. We get the buyers who know they can’t qualify, but also know they’ll need some money to overcome their problems. Frankly we also advertise for the down we want (depending on the situation). This makes sure we get the credit challenged customers who have the cash we want, to call us. Otherwise, we get every Tom, Dick and Harry with $3,000 to their name calling us about our new 3/2/2 with granite, RV parking and a built-in BBQ, because hope springs eternal.
Frankly, our marketing is directed at buyers with crappy credit, because they expect to put up their mother-in-law and ten grand to buy anything in this market.
To be clear, we’re not talking about financing dead beats. We’re talking about doing business with sellers that have solvable credit issues.
The assumption we’re making here is that the homes we’re selling are NICE. If we start off with newer homes, the market expands considerably. The wives will want the new kitchens and baths and pride of ownership…the husband’s will want to please their wives…
So, our qualifying process basically involves asking the buyers how much cash they’ve got to work with (if we haven’t advertised a minimum down). If they’ve got 10% to put down, we then hold a mirror to the buyer’s lips and say, “breathe.” If the mirror fogs up, they qualify.
We’ve got other tools we use to get the buyers out of our houses if and when they default. However, we sell that information!!! :biggrin
As far as contracts go, we would just use a Contract for Deed, specific for use in our state. USLEGALFORMS is the resource we use for deals outside California.
This is NOT like a lease agreement or lease/option agreement. Those are different animals altogether.
The installment contract (Contract for Deed, Agreement for Deed, etc) is like a very long escrow instruction to put it simply. It outlines whom the buyer makes payments to, for how long, and for how much, who pays for insurance, taxes, etc, and finally when the deed will be recorded (when the buyer pays us off …in 2, 3, 10 years???).
Meantime, the buyer can still deduct mortgage interest paid to us, and depreciate the improvements on his income taxes. It’s all as if he had title.
BTW, in CA, a Contract for Deed is considered an equitable transfer of interest and effectively makes the legal assumption that there has been a transfer of title, regardless of whether the deed has been held, unrecorded in escrow, or not. This means that if our buyer defaults and won’t move, and we don’t have our act together on how to handle that, we’ll have to judicially foreclose. This can take months if we don’t know what we’re doing to avoid that mess. It’s something to consider.
Hope that helps.