Owner Financing?

[DiscoJen]

Has anyone ever sold a house by way of owner financing?

I'm suspicious of it and it just doesn't sound like a good idea. But I have someone interested in buying my house to use as an art studio and they briefly mentioned owner financing to see if I would entertain that idea.

With so much of the housing in this area being rental and foreclosures that are going for around $5000 (totally trashed of course) it may destroy my appraisal due to lack of comps, which means it won't be able to be financed through traditional means. Most folks don't carry around $50K cash to buy it outright either.

Any personal experience you guys can throw out to me for reference, or opinions on the subject?

Thanks all!

 

[stu454]

What state are you in as that will effect contracts and other legalities.

 

[Andrew Homan]

Have a lawyer involved Jen. Can't belive I just said that. Protect yourself. My wife says it was fairly common in Alaska.

Where you moving?

 

[LR Max]

Personal financing is alright. It is nice to get a monthly check in the mail.

As others said, get lawyered up with full documentation, etc. Then slap an interest rate on there that makes you happy.

This is a win-win situation for you. You'll end up with more $$$ in the long run and if they mess up, you keep their money and get your house back. On top of that, if they back out I think you can sue.

If these are genuine good people, then you should be ok.

 

[DiscoJen]

I'm in St. Louis, MO and moving about 25 miles NW of here to Overland, MO. Much safer place to be than the city, statistics really don't lie when they say how dangerous St. Louis is.

The folks who are interested seem legit. She works for the DOD and just transferred from D.C. Her husband is a photographer renting an art studio; she is also a part time textile artist so she'd share the house with him. They own another home about a mile from here. So they have ties close by and I have access to someone who can do a good background check, etc. on them. That is a little reassuring.

What would you typically ask for a downpayment for something like this? Seems like the best way to protect yourself if you have a good chunk of their money up front. I assume they would carry the insurance on the house. But how can I be sure they keep up their policy? Sure would suck if something happened

Just extra scarey cause the house is 120 years old. I was hoping for an outright sale so I could be done and gone when they realize how much work it is owning a home this old and the constant maintenance required. Just like I will never sell a car to someone I know again...bastard came screaming at me 2 years later saying I never rotated the tires on it...the tires were 2 weeks old when I sold him the damn car! So I'm nervous about that kind of shit, too.

From everyone's answers so far, it sounds like it's not that uncommon.

 

[KyleT]

dont do it.

they are asking prob because a bank wont finance them.

 

[asmith996]

Provided one of them is actually a DOD employee, you've got a good source of income.....fedgov isn't in the business of laying people off (good or bad thats another thread). They are also doing this as an art studio if i read that right? meaning this is a toy for them....provided they have good credit I'd snap that owner financing up in a heartbeat provided you don't need the cash upfront, obviously lawyer up to make sure you cover your ass, but this is a chance for you to become the bank.

 

[road1will]

That seems to be pretty common around here right now.When i was lookign for my house in march of this year, quite a few sellers were offering owner financing. Perhaps because the owner knew it wouldn't appraise where they needed it to.

That being said, I wouldn't do it. Just seems to risky. And like Kylet said, they may be asking because they can't get financing.

 

[KevinNY]

Just think about the day they stop paying you the mortgage. Then consider the nightmare of having to foreclose on them while they wreck the place and you have no right to even set foot on the property. They may seem nice now, but that is before they owe you money, get divorced, start smoking crack etc.

 

[MUSKYMAN]

dont do it.

they are asking prob because a bank wont finance them.

yeah so what?

banks wont lend to half the American public right now

charge a premium, get refrences, and be a hands on "landlord"

land contracts are as old as dirt and when done correctly create a win win for all involved.

jen gets her asking price in a bad market where she may not get anything and the buyer gets into a house they may not be able to through other means.

I say go for it!!

 

[Rugbier]

Jen,

If you said they own another property yours will be consider an Investement/ Vacation and traditionally Financial Institutions would require 15%-20% Down + closing cost

As previously said, the only hassle would be foreclosing, but on the other hand with a compressed Market, what would you really get for the house appraisal?

Go for it, and tied all loose ends

Good Luck

 

[DiscoJen]

Thom sure is right about the lenders not letting of money very easily. I have an excellent credit score and I had to do a few backflips to get approved mainly because I already own a home. And even though I own it outright, it appears suspcious to lenders who are afraid I'm taking out a mortgage to buy a house to use it as a rental, they were afraid that in financial difficulty I'd foreclose on the one with a mortgage on it. Luckily, since the new house has a higher price, I was able to convince them that the new house would be my primary residence.

I think the interested party in my house are in the same situation. They already have a home with a mortgage on it, so financing is going to be difficult for them through traditional methods.

I'm feeling better about the idea the more I'm hearing from you guys and from what I've researched online. Still not sure what I'll do if it comes down to that, but I'll be double sure I have a lawyer involved and probably have it set up to receive payments into an escrow account with a quitclaim deed prepared so if they default the escrow agent can file it and I can begin eviction. Maybe even set up the financing as a balloon at 5 years so they have to refinance elsewhere so I'm not carrying them for 15 or 30 years. As the little Leprechaun once said..."I wants me gold!"

I had no clue there were so many options and so much flexibility with doing owner financing.

 

[MUSKYMAN]

Jen

I bought my first house on owner financing, I got a house I would never have been able to buy in a up market. The seller got instant cash on a empty house that was just costing them money and bringing nothing in.

2 years later a refinanced and then sold and walked away with 140k in cash from the deal.

the land contract I lived under would have allowed them to toss me out like a renter and keep my up front cash so I knew I was under the gun every month.

It was a win win and in the end all ended well as do most land contracts.

the current mortgage world that we live in is designed to escalate the value of homes. Land contracts are a more conventional way to buy a home by historical standards but most people in the market today are to young to know this so they make stupid unfounded comments about a way of purchasing that has been working all over the world forever!

 

[cptyarderho]

My dad has done a few. The key is to get enough down payment that they have a vested interest in the place. The one deal where he took a small deposit and raised the monthly resulted in late payments and considerable damage. They walked away leaving a 2000 dollar down payment and at leask $5000 in repairs to turn the house around. The payments over the note did not quite make up the difference. If they work in an industry where their credit is critical that is a huge bonus (banking, etc.)

 

[Drillbit]

My dad has done a few. The key is to get enough down payment that they have a vested interest in the place. The one deal where he took a small deposit and raised the monthly resulted in late payments and considerable damage. They walked away leaving a 2000 dollar down payment and at leask $5000 in repairs to turn the house around. The payments over the note did not quite make up the difference. If they work in an industry where their credit is critical that is a huge bonus (banking, etc.)

X2 owner financing can be great but you really need to make sure they won't walk away, that causes a gaint stinking turd of hassle. Get at least 10 percent down and charge them 8 or 9 percent (which if you already own a house the bank is probably trying to charge you something close to that) You should also roll the insurance and taxes into the monthly payment so they can screw that up and get you in trouble that way. Get a decent property lawyer and he will tell you all this same crap and have premade forms for you.

 

[ptschram]

I've bought several pieces of property on contract and had to walk away from one when I got laid off.

Have a good lawyer write the contract, leave yourself many outs and the buyers none! Might include an inspection every six months to make sure they aren't trashing it.

I'm not at all surprised they can't get financing if the own another house and want to buy this as a place to play.

 

[jim-00-4.6]

We bought our first house that way, then sold it that way.
Get it all lawyered up.
On a land contract, if they fail to pay, you keep everything.
The purchase was easy; we paid until we hit the total, then we did a "closing" where the title actually transferred to us.

The sale didn't go so smoothly; the woman who bought it with her boyfriend later broke up with her boyfriend, who was doing upkeep, etc.

She just disappeared, fell off the earth.
We later sold it conventionally.

There are tax considerations that need to be correctly handled.
If you do your own taxes, you'll need to consider "installment sale" gains.
Might be worth paying someone (not H&R Block) to do your first return.

And who gives a shit what the banks will or won't do.
Fuck the banks.
This is interest YOU get.
Buyer gets house.
Jen gets income stream.
Banks get fuck-all of nothing.
WIN !!

 

[road1will]

yeah so what?

banks wont lend to half the American public right now

I'm not sure why people think its so hard to get financed right now. I'm 23, never owned a home before. Bought and paid off two 20k cars, and have a credit card (with no balance and a perfect payment history) and I got approved for a 30year fixed 4.75% loan no problem. My monthly mortgage payment is less than a quarter of my monthly income and I had 20% down, but still, I was approved by the first bank I went to.

If you've got good credit, and are trying to buy a home you can afford, the banks are still lending.

 

[Drillbit]

mortgage payment is less than a quarter of my monthly income and I had 20% down, but still, I was approved by the first bank I went to

So you have great credit and 20% and are buying a house in your income range. Banks would be stupid not to loan you money. I too have no trouble getting loans with 20 percent down but in some parts of the country thats a killer.

 

[smittygj]

I am currently buying my house that way. I moved here right out of the Navy and did not really know where I wanted to live in this town, so wanted to rent for a while first. I found a house that the old couple were moving out of and said they would rent to me for 1 year, and then, if I wanted to buy it, they would sell it to me on a 5 year note at .25 percent above market rate for interest. I bought it, and then when the 5th year came along, it was right in the middle of all the mortgage mess last year, and I kept getting the run around from banks all over the place including my credit union (my credit is not great, but it's not bad either), so I ended up using a wealthy friend of the family to rewrite me on another 5 year note at about the same interest rate.