1. What is the difference between an amortization schedule and a lease-purchase sale?
An amortization schedule outlines how a loan’s principal and interest are paid over time, resulting in a gradual payoff. In contrast, a lease-purchase sale, similar to a rent-to-own arrangement, involves the buyer leasing a property with an option to buy it at a later date. In a lease-purchase sale, payments might not contribute to the principal until the property is purchased outright.
2. What is the ‘Doc Fee’ in a seller-financed loan?
The ‘Doc Fee’ is an administrative fee for processing the loan transaction, similar to a fee charged by a title company in a cash sale. This fee is generally paid at closing and is not applied to the loan balance. It compensates the seller or lender for their time and effort in handling the loan documentation and related administrative tasks. The industry-standard ‘Doc Fee‘ is around $500, but it can vary depending on the specifics of the transaction. Click here to learn more about notes (owner financing) and system terminology.
3. How can I log early payments for a seller-financed loan without affecting the interest calculation?
If a buyer consistently makes early payments, it may affect the interest calculation and cause discrepancies. To manage this, consider changing the ‘Pay Day‘ setting to reflect when the payment is received. For example, if the buyer usually pays on the 25th, you can set the ‘Pay Day’ to the 25th. This adjustment allows you to log the payment accurately and helps avoid incorrect interest charges. Additionally, extending the ‘Grace Period’ can offer flexibility if the buyer occasionally pays later than usual without incurring a late fee.
4. How does a down payment affect the loan’s amortization?
A down payment is the initial amount paid by the buyer at the beginning of the loan. This payment reduces the principal, meaning that it reduces the total amount being financed. Consequently, this lower principal can lead to lower monthly payments, lower interest costs over time, and a potentially shorter loan term.
5. What is the 4-month reserve, and why is it required at closing?
The 4-month reserve is a precautionary fund that covers potential fluctuations in annual property taxes and HOA/POA dues over the loan term. At closing, the buyer is required to pay an amount equivalent to four months’ worth of these costs to ensure there’s enough reserve to cover expenses that might come due before the impound account is fully funded. If there’s any excess in the reserve at the end of the loan term, it should be refunded back to the buyer. Click here to learn more about notes (owner financing) and system terminology.
6. What factors determine the monthly loan payment in an owner-financed property sale?
The monthly loan payment consists of several components: the principal and interest, monthly impound amounts for property taxes and HOA/POA dues, and a monthly loan service fee (administrative cost). Additionally, the loan term and interest rate can impact the payment size. The total monthly payment is the combined sum of these individual components.
7. What is the grace period for loan payments, and what happens if a payment is late?
The grace period is a designated timeframe after the due date during which the buyer can make a payment without being considered delinquent. This period typically spans several days from the payment’s due date. If a payment is made after the grace period, it is considered late, and a late fee is incurred. The late fee can vary depending on the loan terms, but it’s usually a fixed amount or a percentage of the overdue payment. Click here to learn more about notes (owner financing) and system terminology.