Capital Gains Tax?

Whether you’re selling lemonade, clothing, cars, or real estate, the goal is always to make a profit. But in some cases, the more you make…the more they take (in taxes, that is). When you sell your house, you face a capital gains tax based on your profit. So, if your home has increased in value, your sales earnings may take a huge hit.

Luckily, you can reduce the capital gains tax on your home sale and keep more money in your pocket by using seller financing. Southern Loan Servicing wants to share this article listing the benefits of using an installment sale; here are three:

Longer repayment period. In seller-financed transactions, the note can be any length of time determined by the buyer and seller. An installment sale is spread over more than one tax year, meaning the proceeds from the sale are received over time.

Lower tax liability. Each installment is taxed in the year it’s received. By reporting your tax gain in installments, you pay a lower tax on smaller portions of the gain each year rather than reporting the entire amount of the sale and risking getting bumped into a higher tax bracket.

Interest earnings. With seller financing, the owner earns interest from the buyer. The owner also makes a steady return for an extended period of time.

What is a Deed in Lieu of Foreclosure?

At Southern Loan Servicing, we are here to help you learn about your options and make seller financing more accessible. Today, we’re covering a deed in lieu of foreclosure, which can offer some security for hesitant sellers/lenders.

Here’s what you need to know:

  • A deed in lieu of foreclosure is a legal arrangement where the homeowner voluntarily transfers ownership of their property back to the lender in exchange for the cancellation of their remaining mortgage debt. This can be used if they fall behind on payments or are no longer able to purchase the property.
  • This option can help homeowners avoid the negative effects of foreclosure on their credit score, as lenders can view it more favorably.
  • With seller financed loans investors may use this as a tool in conjunction with a large down payment, and personal guarantee to show the lender they are good for the loan, and that the seller will regain title without having to go through a lengthy and expensive foreclosure if the buyer stops paying.  
  • It may not be available or feasible for all sales, as it requires the lender’s consent and may have tax implications. You should weigh the potential benefits and drawbacks before pursuing a deed in lieu of foreclosure.

You can find a more in-depth explanation and answers to frequently asked questions here. 

Are you wondering why you should work with a loan servicing company?

We’re excited to share a series of educational videos with you over the next few months that we hope will answer some key questions about working with Southern Loan Servicing!

Title Companies that work with our Loan Servicing company are able to offer their clients a better service experience. And get the closing on the front and back end of the transaction. Word of mouth and building relationships with your clients builds the trust they want and need for such an important time in their life.

What is a “subject to” mortgage?

This is a sale where the seller is not paying off the existing mortgage, but rather having the new buyer pay the mortgage obligations. That means the seller maintains the responsibility of paying off the loan, but the buyer has agreed to make mortgage payments on behalf of the original seller.

A great alternative financing option, a subject to mortgage can tip the scale in buyers’ favor, but only when carried out responsibly and with the proper knowledge of how to proceed. This also can work as a filler solution to a sale that needs a little more time/money/repair for traditional financing. Often misunderstood, subject to mortgages are not as complex as many initially assumed. If for nothing else, few people are actually aware of what a subject to mortgage is, but the answer is in the name. In its simplest form, the “subject to” in a subject to mortgage refers to the loan that’s already in place. When you purchase a property subject to, you are essentially buying the home subject to the existing mortgage — that’s really all there is to it.

Subject to strategies aren’t all that common, but you will find that they can be useful in certain circumstances. Distressed sellers, for example, may be willing to sell subject to if they want to rid themselves of a property immediately. On the other hand, buyers will tend to favor subject to when the interest rates on the existing loan are lower than the current market rates. Read more about it here.

Owner Financing- how do we get started?

  • Buyer and Seller complete a purchase agreement / sales contract. One can be provided if needed.
  •  Buyer has the option for home inspection, appraisal and abstract (title search) to verify there are no liens, wills, mortgages, or other documents affecting title to the property. This is when verification of the legal owner is made, and all the debts owed against the property are determined.  Buyer typically pays for inspections and appraisals and should note if they waive this option.
  • Insurance needs are established, buyer should price out for new policies and obtain quotes based on sellers’ requirements.
  • Law office or title company should be given all quotes to add to the settlement statement, this includes the servicing companies’ fees, as they should be included with settlement costs.  Property insurance and pro-rated taxes are added to the settlement statement or paid before signing.
  • Escrow/settlement officer oversees closing of transaction. Seller signs deed then buyer signs new mortgage. Seller, real estate professionals, attorneys and other parties to the transaction are paid. Documents are recorded in the county/parish in which the property is located.
  • All sales documents are forwarded over to the loan servicing company, this should include copies or original promissory note, mortgage, terms of loan, copies of insurance documents and tax information.  Signed servicing agreement and contact information must be included.