owner financing

[lazygood4nothinbum]

considering offering five years of owner financing on the inherited house to try enticing buyers off the fence. thinking something like 20% or 25%down plus five years at maybe between a convention & jumbo interest rate.

advantages? pitfalls? your thoughts?

[OAG]

Check out the process to foreclose (cost and time). Good luck finding someone with the 20 to 25% down (be nice if you can tho). If you can get 20-25% down it eases the process if foreclosure becomes necessary. I would guess the smaller the down payment the larger the possibility of foreclosure becomes.

IMO be prepared for the "worse" case and be happy if it never comes to that.

What happens after 5 years, if they cannot refinance?

Personally I would drop the price to as low as I had to just to be (cleanly) clear of the entire situation-process.

[tryan]

Sold one SF to a tenant and carried the note in a first position. After a few years the place nearly doubled in value. That's when it occurred to me that the up side was his and down side was mine (he'ld mail back the keys).

Ideally with a large deposit the buyer as a skin in the game. You need to wonder why this buyer would finance thru you and not go conventional. Your loan process will be nearly non-existent (no appraisal fees, mandated inspections for termites, septic problems...) so he'll save some cash. But what's he hiding? I require a higher rate (1 pt minimum) to offset this risk.

Also know that he may refi/sell at any time ... sooo a large wad may drop into your lap at a inconvenient time (tax consequences).

[RunningBum]

You may run into a buyer who wants a 0% or 1% mortgage!

I wonder if that guy actually asked.

[Martha]

Owner financing can save the buyer some costs, like origination fees, appraisal fees, maybe title insurance (though you might as a seller want to have the title insurance).

The problem is that you will want a significant down payment and most who can make a significant down payment will just do conventional long term financing.

We have thought about financing the sale of our 4 unit building. It probably works better for rental property than single family homes. But I would not do it without a significant down payment.

[brewer12345]

Lazy, if you can get a buyer with a fat downpayment who isn't looking to set up a meth lab in the basement, it might be worth considering. But you should thoroughly plumb the downside potential of having to foreclose. It is likely that this process would take a year, cost you significant attorney's fees, and you would get a trashed house back. The refi issue is less of a big deal because you could just negotiate a refi penalty clause where the buyer would have to pay X number of points if they pay you off in the first Y years.

[FUEGO]

Think about the scenario where the house goes up in value 50% over the next five years. The buyer makes a killing. The market goes down 25%+ over the next five years - he may send you some keys in the mail.

On the other hand, if you are really wanting the money now, it may make selling a lot easier. But I still would wonder why a buyer who can afford 20-25% down would need seller financing. Maybe a self employed or an entrepreneur without verifiable income?

[brewer12345]

Quote:

Originally Posted by FUEGO Think about the scenario where the house goes up in value 50% over the next five years. The buyer makes a killing. The market goes down 25%+ over the next five years - he may send you some keys in the mail.

If the value of the property skyrockets, it is virtually certain that the buyer would sell or refi. After 10 years, a lot of paydown will have ocurred, and many of these deals include a balloon payment within the first 10 years anyway.

[kcowan]

I would stay out of it. With all the rot in the mortage marketplace, if you cannot get your minimum price, why not rent it out? I know that is not desirable either but if recent owners are being foreclosed, there should be a good choice of potential renters.

In 5 years, the worst of the meltdown should be behind us.

[al_bundy]

as a buyer i would be very wary of doing owner financing

with my mortgage and car loan if i pay extra all i do is check the website for payment info and payoff information which is automatically updated. with owner financing i have to keep very detailed records and may have to have a math contest.

[calmloki]

Stewing over the same thing on one of our places - the way i looked at it was that a 20-25% down would about cover the tax burden, wouldn't give us anything to do a 1031 exchange with, or if we only paid tax on the actual amount recieved it would be a tax hassle for the next # of years. Interest is way low compared to the last ,oh, 100 years or so, so why would i want to accept low interest and be unable to make the sale money work hard for me. What we are doing is lining up financing ahead of time, so if a qualified buyer walks by we can offer instant financing. Also considered borrowing up to our eyeballs on the place, using our good credit, and then carying a contract for a tad higher rate, but again, assuming more risk... wurra wurra.

[calmloki]

Quote:

Originally Posted by al_bundy as a buyer i would be very wary of doing owner financing with my mortgage and car loan if i pay extra all i do is check the website for payment info and payoff information which is automatically updated. with owner financing i have to keep very detailed records and may have to have a math contest.

Back in the 80's and early 90's we bought a bunch of places with seller financing - no bank hassle, fast, low interest, quick and clean. Close at a title company and have a mortgage service company handle collection and disbursement at $5-6/party and get nice statements at the end of the year and no worries. As a seller i tried to do my own collection and bookkeeping. once. horrible, not worth the savings at all.

[al_bundy]

with a third party collecting the checks i would do it, sending it to the seller i would think twice about it.

these days with internet bill pay it's a hassle to write more than 1 or 2 checks a month anyway. you have to write them, go to the post office and buy stamps, keep the records of them once they are cashed, etc.

[lazygood4nothinbum]

Quote:

Originally Posted by OAG Check out the process to foreclose (cost and time)....What happens after 5 years, if they cannot refinance?

i also have to see if the new fed rules protecting foreclosure cases have any bearing on private mortgages. as to what happens in five years, i assume the mortgage would balloon and we'd take the property back.

Quote:

Originally Posted by tryan ... it occurred to me that the up side was his and down side was mine (he'ld mail back the keys). Ideally with a large deposit the buyer as a skin in the game. You need to wonder why this buyer would finance thru you and not go conventional. Your loan process will be nearly non-existent (no appraisal fees, mandated inspections for termites, septic problems...) so he'll save some cash. But what's he hiding? I require a higher rate (1 pt minimum) to offset this risk. Also know that he may refi/sell at any time ... sooo a large wad may drop into your lap at a inconvenient time (tax consequences).

i don't see this doubling in five years. ten or 15 maybe but my arthritis is gonna be a bitch by then. don't see it crashing more aside from total economic collapse. pretty sure i'm selling at the bottom and pretty sure we won't see another bubble in time for me to enjoy it much.

my thinking was that i could offer a rate lower than jumbo so that even if someone could qualify, maybe that would be attractive. i guess with so few homes selling that i'm just trying to think of how i might increase the pool of possible buyers, something that might give me an edge over the next house.

i hardly know a thing about finance never mind taxes. still have the house in the estate name. from what i understand, when title transfers, the only tax ramifications of this thing is that i get to write off $3k/year for the rest of my life in cap gains losses.

Quote:

Originally Posted by Martha The problem is that you will want a significant down payment and most who can make a significant down payment will just do conventional long term financing.

ok, so maybe no one will use it; but maybe that "owner financing" sign will create the illusion of competition or at least peak some interest.

Quote:

Originally Posted by brewer12345 Lazy, if you can get a buyer with a fat downpayment who isn't looking to set up a meth lab in the basement, it might be worth considering. But you should thoroughly plumb the downside potential of having to foreclose. It is likely that this process would take a year, cost you significant attorney's fees, and you would get a trashed house back.

wouldn't want the house trashed but i take that risk now with a renter. also, i'm only selling for the land value so, frankly, i wouldn't mind if they burnt the thing to its foundation, since fay didn't take it down. that year long process of foreclosure and rehabbing to re-rent sure would suck though. why couldn't this just have been two years ago. where's mr peabody & his wayback machine when you need them?

as to early loan payback, not an issue. on time or early makes no difference: i just want out.

Quote:

Originally Posted by FUEGO Think about the scenario where the house goes up in value 50% over the next five years. The buyer makes a killing. The market goes down 25%+ over the next five years - he may send you some keys in the mail.

while i've got mr peabody's wayback machine, i think i will go back to merlin's court & retrieve his crystal ball.

Quote:

Originally Posted by kcowan I would stay out of it. With all the rot in the mortage marketplace, if you cannot get your minimum price, why not rent it out? I know that is not desirable either but if recent owners are being foreclosed, there should be a good choice of potential renters. In 5 years, the worst of the meltdown should be behind us.

already rented and they got it cheap cause i wanted a clause to kick them out if by some slim chance the house should sell. this is deepwater property in excellent area and there are zero bank owned properties of this product available within many miles. as of right now (checking realtytrac.com) there's one preforeclosure on a $4+mm property about 3 miles to the south, none in our immediate area and six of'm a few miles north of us in a less desirable, highly spec'd area.

i suppose i could go back to work for a few years and wait it all out. i'm looking into that anyway since i can't sell & so i'm stuck here. so great, i'll be in better financial shape but also i'll be five years older. maybe i should just close all the houses up and join the peace corp. anyone wanna check up on any hurricane damages for me while i'm away in namibia?

Quote:

Originally Posted by al_bundy as a buyer i would be very wary of doing owner financing with my mortgage and car loan if i pay extra all i do is check the website for payment info and payoff information which is automatically updated. with owner financing i have to keep very detailed records and may have to have a math contest.

not a problem. buy my house and i will set up a website for you.

Quote:

Originally Posted by calmloki Interest is way low compared to the last ,oh, 100 years or so, so why would i want to accept low interest and be unable to make the sale money work hard for me....As a seller i tried to do my own collection and bookkeeping. once. horrible, not worth the savings at all.

for me, all the money is tied into the house so it is not as if the money can "work" safely in any other way right now. and i figure even if it did sell now, i'm not so sure i'm comfortable with the markets. so five years of a decent rate doesn't sound too terrible.

i'm also terrible at collecting money. my mother loved it. was the favorite part of her job. but i hate it. probably why i never got good raises. as a teen i worked (lasted three days) at a burger king and never even bothered coming back for my paycheck.

[Buckeye]

Lazy - Are we talking your inherited house where all the proceeds are profit?

[Martha]

Quote:

Originally Posted by Buckeye Lazy - Are we talking your inherited house where all the proceeds are profit?

He has a stepped up basis, so it won't all be profit. Heck, he might even have a loss.

Lazy, no harm in advertising that owner financing might be available.

[lazygood4nothinbum]

ya. mom died a year to the month after housing peak at which point values fell off a cliff, well, that's if we had cliffs in florida. i guess it fell down a sink hole. so i get the boobie prize of bubbles, a lifetime supply of annual max cap gains write-offs.

appreciate all the input. gonna research some more and then approach the realtor with this.

ps. very disappointed with having gone to an international real estate company. total waste; looking foward to end of contract in december. apparently all i accomplished buy that move was to surround myself with bigger sharks.

[Keim]

Quote:

Originally Posted by RunningBum You may run into a buyer who wants a 0% or 1% mortgage! I wonder if that guy actually asked.

I did not. As I said in that thread, my post was for learning purposes. I learned I didn't want to do that for this deal.

[samclem]

I sold a house with owner financing about 15 years ago. The guy had bad credit (due to a recent divorce and the mess that ensued), but he was willing to put down 20% and gave me my asking price. The note was even about 1% above market rate.

It worked out great. He made every payment right on time. After a few years I wrote him a note and told him that I was very happy with the arrangement, but suggested that, if his credit was now strong enough, he might want to save himself some money by trying to get a regular loan. He hadn't thought of that, was very appreciative. he got the loan and paid me off.

I think it's the only story like that I've ever heard.

[FUEGO]

Quote:

Originally Posted by samclem I think it's the only story like that I've ever heard.

Yep - I know at least one owner financing deal that went bad. My neighbor sold his house to a couple of apparent deadbeats (if having a party and then having a gang-related shooting in the street to "cap" the evening is any indicator). They put down 5% IIRC, then paid for a couple of years. When the rent-a-center trucks showed up to take back the furniture and big screen TV, I knew things were heading down hill quickly.

The owners apparently defaulted on the note so the seller/note holder took back the house. It must have been trashed inside (the deadbeats had a dog that they ignored and left at home a lot). The seller put the house back on the market. I called the realtor to inquire and they said you would definitely need to do major work on it to get it habitable. New cabinets, new floors, new carpet, paint, replace some drywall, replace some exterior doors, etc. But the seller was selling "as is". After a year on the market, the seller fixed the place up and put it back on the market, and it sold in another few months for about what he had sold it for about 4 years earlier (to the deadbeats). Not sure how much the seller was out of pocket on this deal, but imagine the headaches! I'm sure the deadbeats were late every month and the seller ended up being a landlord collecting rent and receiving a trashed place back when the deadbeats "tenants" decided that their lease was up.