Owner financing with or without mortgage (foreclose, 3%, sale, settlement)
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Since the original note is at a great interest rate, it makes the wraparound appealing.
But, look at it from the lender/investor's standpoint.
If you are sitting on a low interest note and are notified that the borrower has given interest in the property to another party, you would clearly be motivated to accelerate and cash out so you could lend at higher rates.
If I have lent at 3.12% and can roll that into a 5% note, why sit at 3.12% so the borrower can cash in?
It may be smarter for the OP just to make the place into a rental to have a tenant amortize and provide cash flow.
My current mortgage is 3.12%. I have $86k left on the balance. Home value roughly $225k.
My question is, in order to attract buyers, could I offer owner financing at say 4.5%? Could I offer this while keeping my current mortgage? Or would I need to pay it off? I could pay it off, that would not be an issue.
Any other hazards or issues?
Thanks
Do you want to really become a lending institution and a collection agency ? What if they get into trouble down the road and bail on you ?
Many years ago, we bought our first home as a young couple, and the owner financed it for us. We made payments faithfully for years, and then went to a bank to refinance it so we could get some more money to finish the remodeling we were doing. Found out the guy we were making payments to all those years had gotten into financial problems, and there was a lien on our home ! I had to threaten to choke him to get him to put our money into escrow so that the bank could finance our home through them.
That is a reverse situation to what you would have, but a lot can happen over the years.
The words "owner financing" will most likely attract every loser who can't qualify for a mortgage in today's market, which is already spilling over into the sloppy qualifying standards of the last real estate bust. If you go down that path, you definitely want to do a thorough credit check on the buyers.
Then there's the paperwork. It will take time every month to keep track of the payments. You'll need an amortization schedule to accurately calculate the interest, principal, and remaining balance due. There are also annual 1098 mortgage interest statements to prepare.
You'll also have to worry about the buyer maintaining the property, paying the property taxes and insurance. That means you'll be married to your old home for the life of the loan.
Before entering into a sale with owner financing, you may want to consult a real estate lawyer and obtain legal advice with regard to the financing, disclosure, and repayment requirements that need to be met, and to find out the specifics on what documentation you should have to protect your interests in the deal.
An account servicing company will take car of all that..for about ten bucks per month. Turbo Tax also handles owner financing. My buyer wanted time to sell his existing home.
The type of mortgage you are talking about, a wraparound mortgage, was more popular years ago. Title can be passed with a mortgage still in place, however, most mortgages are due on sale, so the lender can accelerate the loan, if they want.
Talk to a lawyer so you know what the foreclosure process is like in your state, so you know the risks involved. And, if there are other ways to sell with a mortgage still in place, like land contracts.
And, as others have said, finding a qualified buyer is important.
As I was reading the OP's post, Land Installment Contracts came to mind, which is basically a wrap mortgage. These financing tools typically don't appear unless the RE market is in the toilet. Wraps or LIC's may be illegal in some states, but in all cases, an experience RE attorney should be involved. As others have pointed out, you may not have the most favorable pick of buyers, but you also don't have to quibble about price, no appraisals are performed for the loan.
just sell the house, and invest the extra money in the stock market, or a wide variety of other investments that would yield you more money. Maybe buy a rental in the new area, since as I recall you will have sufficient assets and income to wing a personal residence and any qualifiers on a rental.
Do you have a legal staff expert in constructing loan contracts, plus an underwriting staff expert in evaluating credit reports and borrower risk?
Do you have access to professionals to collect bad debts? Do you have access to a collection agency? Foreclosure and eviction professionals?
Do you have the ability to take off from your regular work at any time to attend court cases that may eventuate from this owner financing?
Are you expert at evaluating surveys and title traces?
In other words, if you are already prepared to do what has to be done, either in every such transaction or in one gone bad, why are you not already a bank or mortgage company president in which case you wouldn't be fooling with something like this?
I am the only person I know that followed through as the buyer in an owner financing deal. We were moving to a new state, self employed, and couldn't qualify for a mortgage until we had two tax returns in the new state. We gladly paid a higher interest rate to get into the house we wanted. The deal was to refinance in 3 years, which we did, then the owners got the balance of their proceeds for the house.
I am the only person I know that followed through as the buyer in an owner financing deal. We were moving to a new state, self employed, and couldn't qualify for a mortgage until we had two tax returns in the new state. We gladly paid a higher interest rate to get into the house we wanted. The deal was to refinance in 3 years, which we did, then the owners got the balance of their proceeds for the house.
That would be an ideal situation. I can make 4.5%-5% per year for a few years then be done!
Thanks to everyone that responded. I have read every response.
I am particularly interested in owner financing or lease to own. The major reason I don't want to rent the home out is because of the updating we have done - I feel renters would really wreck it. I put a ton of time/effort into interior refinishing like painting and prep work. Anytime I nick the wall I touch it up immediately. Renters just do not take care of a house. If I wanted a rental I would buy a fourplex or something specific to renting and make it amenable to renting ie tile floors, etc.
I have read in the past about companies doing the loan bookkeeping for you. Perhaps I should pay off the house and earn my 5% plus the sale of the home. However the risk with that is if money market rates increase to close to that or above like pre-2008 days. I remember back then my money market was 5% and my mortgage was 5.75%. Not a big spread.
I am now armed with some good questions for an attorney, thanks to everyone.
My current mortgage is 3.12%. I have $86k left on the balance. Home value roughly $225k.
My question is, in order to attract buyers, could I offer owner financing at say 4.5%? Could I offer this while keeping my current mortgage? Or would I need to pay it off? I could pay it off, that would not be an issue.
Any other hazards or issues?
Thanks
In order to attract buyers make the home look nice and price it right. Sell for $225K, after your costs pay the bank back what you owe.
Do you have a legal staff expert in constructing loan contracts, plus an underwriting staff expert in evaluating credit reports and borrower risk?
Do you have access to professionals to collect bad debts? Do you have access to a collection agency? Foreclosure and eviction professionals?
Do you have the ability to take off from your regular work at any time to attend court cases that may eventuate from this owner financing?
Are you expert at evaluating surveys and title traces?
In other words, if you are already prepared to do what has to be done, either in every such transaction or in one gone bad, why are you not already a bank or mortgage company president in which case you wouldn't be fooling with something like this?
A deed of trust will spell out what happens if they don't pay....in a non judicial foreclosure State, that action is swift. The sevicers will include any terms you can write on paper....second late payment and interest goes to 12%, default rate will be 18%, and the servicer will also run tax and insurance escrows.
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