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Banks can profit off the home buyer's fees and mortgage payments for 30 years. On the other hand, I've viewed home listings that offer financing directly to the buyer. Is this financing usually offered by the seller, or is the real estate agent's company providing the financial service?
Not all buyers need the money right away. If they've got decades of life expentancy, then why not earn 5+% interest off a buyer? These sellers, however, probably are well versed in legal maneuvers to foreclose on the property should the buyer default on payments. Rock solid contract.
The other catch I see is if the buyer or seller dies during the repayment process. Could complicate things for the seller or seller's family.
Would you ever consider selling your home by financing the buyer?
Only if I didn't really care whether I sold the house or not. In my experience, at least 90% of owner carry, lease purchase, lease option, etc type deals do not work out, and the seller ends up with the house back.
The seller has to typically have the house completely paid off in order to do this, or close enough so they can pay off the balance with the buyer's down payment. I'm not familiar enough with the details to give any advice beyond that, but I cannot suggest strongly enough to have both an attorney and a title company involved. Many real estate agents won't even do these sorts of deals, they just tell you to get an attorney to write it up, because there are so many possible variations. An agent would have to illegally practice law to end up with a contract that covered everything.
My aunt owner finances her ranch twice becuase no other buyers came foreward. Notice I said twice. The first one she required 30% down the second 20% the first defaulted in less than a year the second last a bit longer. She then sold it outright. It worked for her took in 500k in down payments plus some actual payments and ended up selling it for more than she had asked for the two previous times. It's not always that pretty though
Usually people who use owner financing don't have cash and/or credit
We bought our last house with owner financing because we were self employed, moving from another state and couldn't get traditional financing for 2 years. I think they had a few other deals fall through because they were surprised when we were ready to pay them off when we refinanced 2 years later. We did use a realtor and an attorney who specialized in these types of contracts.
Banks can profit off the home buyer's fees and mortgage payments for 30 years. On the other hand, I've viewed home listings that offer financing directly to the buyer. Is this financing usually offered by the seller, or is the real estate agent's company providing the financial service?
Not all buyers need the money right away. If they've got decades of life expentancy, then why not earn 5+% interest off a buyer? These sellers, however, probably are well versed in legal maneuvers to foreclose on the property should the buyer default on payments. Rock solid contract.
The other catch I see is if the buyer or seller dies during the repayment process. Could complicate things for the seller or seller's family.
Would you ever consider selling your home by financing the buyer?
This would make sense only if the house, rather than the buyer, is the reason the buyer cannot get a mortgage.
In other words, if it was an unusual house with no comps or had something wrong with it that made it unmortgageable, then sure, finance the buyer, with 20% down, credit check, DTI under limits, etc.
And charge a somewhat above-market interest rate (+0.75%?)
Otherwise, no. If the bank, which has millions or billions of dollars to spread out among many loans, says it's too risky, then an individual with only one loan should as well, as there is no diversification and it is much riskier. In other words, risky for bank = very very risky for individual, unless uber-rich.
You can invest in mutual funds which hold MBS's if you really want to deploy capital with mortgage lending, and this is diversified. If one borrower defaults, you aren't going to lose it all.
I would absolutely love to sell and carry the papers, why let the bank make all of that money when I need it more?
I have rental homes that I'm considering putting up for sale if and when the renters give notice. I'm getting older, time to cash in. There is nothing I could be happier with than to finance the loan.
The way I would do it, would be to amortize the loan over 30 years, due in five, with the option to renew.
In other words, they would get the interest rate of a 30 year mortgage, but they would have to refi and pay it off within five years, with an option to renew the loan for another five years.
You can charge more than prevailing rates because there are no blue sky charges loan companies like to throw in, and very possibly they don't have great credit, so are willing to pay higher interest. Get a good down and if they default, you keep the down and start over.
It's also a tax advantage to take payments rather than a lump sum.
One rental I own was purchased with the owner carrying the papers, 30 due in 5, I paid it off in four years. I've owned that one for 20 years and ready to sell if the renter were to leave. it's out of state and inconvenience to watch over.
A great way to go if you own the home and don't need immediate cash..
Don't forget, the catch to "I have all their equity if they default" is "I have to pay for all the damages they do if they default, as well as the legal fees to get the house back and evict." I've had a tenant do $15k in damages, and have seen people getting foreclosed on do things like take all the cabinets, the plumbing, the lighting, the appliances, and even take a sledgehammer to the granite countertops or put cement in the toilets. And I've had evictions cost as much as $5000. So unless they have a LOT of equity, you may lose money if you get a bad one.
Of course, the risk is no different than with tenants, and you are almost certainly going to have more equity than you have in security deposit with a renter, so there is that.
Not if I could help it. Such arrangements were common during the credit crunch of the early 80's by sellers who had to move. Many eventually owned an additional house they didn't want. Unless the buyer has horrible credit, why would you?
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