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A friend of mine, not real close friend but more then an acquaintance has moved away and wants to sell her house. I want to buy her house. She says that she would be willing to finance it and I will just pay her. I imagine I want something such as a contract written by a real estate lawyer and an escrow account (is that what it's called?). I imagine she wants to sell it this way because the house was built in 1960 and would be difficult to get a bank to lend on that old of a home here. I'll say that it has been updated and kept well. Anyways, I am new to this business and would love to hear any thoughts you all may have on this type of deal.
Is the house paid off? I mean does she have a mortgage on it? if so do NOT go any further with this owner finance plan.
Even if she does own the house free and clear, it is not a great idea, and BY ALL MEANS if you do want to do this Have a good Lawyer right up the contract for you. Hopefully others will chime in on all the reasons not to do this.
If there any reason you would not qualify for a regular mortgage? house being 1960 should not have any bearing on getting a mortgage. Our house that we bought in 2010 was built in 1929 and did not have a lot of upkeep done and we got a mortgage just fine.
This is really not a good idea especially when it sounds like neither of you know what you are doing or what is involved.
Yes, use a real estate lawyer. As in any sale...... the deed goes in your name and she files the lien paperwork with the state registry, just like a bank would.
If she will not deed the land over to you.... NO DEAL under any circumstances.
PS. As for a bank not willing to lend on a 1960's home, that doesnt make sense. Houses around here are from the 1800s and have no issues getting loans.
Eh, a realtor told me a couple of years ago that the banks here don't like to loan on homes older then 30 years old. Glad to hear that is incorrect information. I don't know if the house is paid off or not as we are just now discussing it and I had not thought to ask. That's why I'm asking here. Thanks for the info.
Hire a lawyer to walk you through the process. DONT be stupid and just live there making payments on a verbal agreement or some crazy written on a napkin agreement.
Hire a lawyer to walk you through the process. DONT be stupid and just live there making payments on a verbal agreement or some crazy written on a napkin agreement.
Sorry, did you miss reading my original post? I'm not experienced in this area but I'm not an idiot!
1) Banks don't like to lend on manufactured homes on land that are 30 years old. Is this a stick built house or a manufactured home?
2) When the seller carries the financing you can do it as a land sales contract or First Trust Deed/Mortgage. We do First Trust Deeds in Oregon. With the land sales contract, title doesn't go into your name but the deed is held in escrow until the house is paid off. You pay the escrow company and they pay the seller. With a FTD, you are on the deed and it is recorded at the county.
3) If the owner has a mortgage on the property you can't do a FTD, only a land sales contract. This is called a wraparound mortgage. They are highly risky because you are counting on the owner to continue to pay the underlying mortgage note while you pay them. Most FTD's and mortgages have "due on sale" clauses and you also have to hope the lender doesn't call the note due.
1) Banks don't like to lend on manufactured homes on land that are 30 years old. Is this a stick built house or a manufactured home?
2) When the seller carries the financing you can do it as a land sales contract or First Trust Deed/Mortgage. We do First Trust Deeds in Oregon. With the land sales contract, title doesn't go into your name but the deed is held in escrow until the house is paid off. You pay the escrow company and they pay the seller. With a FTD, you are on the deed and it is recorded at the county.
3) If the owner has a mortgage on the property you can't do a FTD, only a land sales contract. This is called a wraparound mortgage. They are highly risky because you are counting on the owner to continue to pay the underlying mortgage note while you pay them. Most FTD's and mortgages have "due on sale" clauses and you also have to hope the lender doesn't call the note due.
4) Yes, attorney's write these contracts up.
Thank you. This is the type of information I was looking for. It's a stick built house. I believe she owns it outright but have sent her an email to ask. If not, I wont go further.
I've bought and sold several properties on Land Contract (aka "Contract for Deed" or other names in some states), so it can be an appropriate means of financing in certain situations. The main perils with Land Contracts are that either the Buyers can't otherwise get financing and are poor credit risks; or that the Sellers are in trouble financially with a clouded title and/or the house is in a subpar condition not eligible for traditional financing. As long as risky situations can be avoided, however, it can be easier and cheaper than dealing with banks. (If they have a present mortgage, however, many of them have "due on sale" clauses which would disallow a seller-financed sale.)
As a purchaser, you need to do all of the due diligence that would normally be required in purchasing a house with traditional financing. Make sure to have a title search of the property, preferably obtaining title insurance, and also don't fail to get the typical housing inspections. Doing both of those things will help you avoid the most common problems associated with buying on Land Contract.
Of course, you should get a good real estate attorney to help structure the purchase. With a Land Contract, the Deed to the property isn't transferred until the contract is paid off--but I would recommend that you have the Seller execute a Deed at the time of purchase and then have the Deed held in escrow so it can be delivered to you once the contract is fulfilled. (That is not always the case; sometimes people rely on the Seller to execute and deliver the Deed upon full payment. Having it executed ahead of time simply avoids potential problems down the road.)
You could also likely find a company to service the Land Contract payments, but it's really not that difficult and I'm sure you could handle that on your own. As long as everything is set up properly, I see little need to establish an escrow account for the payment of taxes and insurance. Some people may prefer that, but I never have. (The Seller may require that, though.)
The other main way to use Seller financing is with a purchase money mortgage. With this method, the Deed to the property is conveyed at time of sale and the Seller takes back a mortgage--just like a bank--to secure the loan. The same precautions about due diligence come into play.
Again, check with a qualified real estate attorney to review your options and to determine whether this is right for you in this instance. If you can secure other financing with little or no closing costs, you might consider that, too.
EDIT: I'll add that practices, of course, vary by state. For example, we don't use Trust Deeds in Michigan.
Last edited by jackmichigan; 05-18-2014 at 05:18 PM..
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