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We've been looking to move for a while for several reasons. I can't find a decent realtor here to save my life and I'm thinking of selling FSBO. One of the options we talked about is doing an owner finance. The house we're looking to buy in GA is MUCH cheaper than what we're selling here and the down payment on the house here (if we did owner finance) would cover the purchase price and closing costs of the house there. Given that we'd still have the same amount of mortgage debt in the event the purchasers didn't make the mortgage payments here we could still cover them. Just wondering if it's a good idea. Here's the info:
Selling house in TN. Down payment would be $40,000 plus $700 a month for 2 years with all rent payments going 100% toward the equity, leaving a $78,200 balloon mortgage due at the end of the two years.
The house we're looking to buy in GA is listed at just over $33,000 but I think we can get it a bit less. It's less than half the size of the house we're selling and a small fraction of the land, thus the lower price. So the $40,000 should cover the purchase and fees I'd think. I can't remember what we paid in closing costs when we bought any of our other homes but it seems like it's been in the $3000 - $4000 range. Rural areas of each state if that helps any.
The goal is to send the $700 a month they pay to the mortgage company as usual and put the $700 we would have spent on the payment into a savings account. That way we're socking money away and if they stop making payments we're not dead in the water. Considering we'd be paying cash for the new home we wouldn't have to worry about carrying two mortgages.
Anyone have thoughts on this? Looking for pros and cons. We're not dedicated to the idea at this point, just kicking things around. I'm interviewing for a job down there but told them it could be a few months before I could start so we're not critical yet, but I am eager to get there at the same time.
1. If the buyers need an owner finance, they probably have a poor credit history...and history tends to repeat itself. Do you want to own that house again soon?
2. Hire a lawyer to write the contract. Make sure there is no subordination clause (where they take another loan against the house that becomes higher priority). That could cause you to lose the home completely.
3. Submit a request with the county recorders office to inform you if any liens are placed on the property due to unpaid taxes or utilities. If you foreclose, you will still have to pay these.
4. Find a good realtor - if you think they aren't worth a crap, you are probably asking too much money for your house. If it's priced correctly, it will sell. If it's priced too high, no amount of marketing will convince someone to buy it. With the internet these days, everyone looking for a house will see it as soon as you list it. Present it well, price it well, and list on MLS and you will have a sale.
There are loan servicing companies that will do all the paperwork for you for a small fee. They do the contract and collect the rent, do the year end tax paperwork, everything that needs to be done that a mortgage company would do if you borrowed from them. It's very inexpensive. Last time it did it, it costs a couple of hundred to set up the account, and a few bucks a month to service the account, which I charge the buyer for. It's a great deal for the sellar, asyou will make all the interest money the bank usually makes. It's a great deal for the buyer because there are far fewer fees than a mortgage company charges a borrower, and it's a lot easier for them to qualify for the loan.
If you get a good down payment, the worst that could happen is they default and you reposses the place and keep the down and all monthly payments made up to the time they were to default.
I would gladly carry a loan like that any day, that is where all the money is made. That's why investors love to buy up second mortgages, there is big money to be made doing so..
I love these kinds of deals. Usually you can start them out as lease to own which builds a nice profit in and then you get well above market rate interest which after a little seasoning either gets refinanced by the buyers or you can sell the paper for profit. Key is to think like a landlord, check references fo what they did to other properties they lived in and then treat everything like rent. Rent is never fixed so neither should your loan terms. Do a hybrid of an ARM. Something like a fixed 2 yr payment and then a reset works well because it motivates the buyers to keep their credit noses clean so they can refi. Everyone wins in that situation.
1. If the buyers need an owner finance, they probably have a poor credit history...and history tends to repeat itself. Do you want to own that house again soon? That is definitely on our cons list. We are asking a high enough down payment to pay cash for the home we're moving too though, so we'd planned on continuing to make the mortgage payments to the bank each month as we always have and just bank the payments the buyers are sending us. Certainly doesn't mean they won't default by any means, but a higher down means it's less likely and because we won't have any additional debt we can easily carry the payment if the worse case scenario does occur.
2 and 3. Hire a lawyer to write the contract. Make sure there is no subordination clause (where they take another loan against the house that becomes higher priority). That could cause you to lose the home completely.
Submit a request with the county recorders office to inform you if any liens are placed on the property due to unpaid taxes or utilities. If you foreclose, you will still have to pay these.
Both good ideas!
4. Find a good realtor - if you think they aren't worth a crap, you are probably asking too much money for your house. If it's priced correctly, it will sell. If it's priced too high, no amount of marketing will convince someone to buy it. With the internet these days, everyone looking for a house will see it as soon as you list it. Present it well, price it well, and list on MLS and you will have a sale.
My experience with realtors here is you can't get in touch with them. It's not just me - honest! I've heard from sooooooo many people that have had the same problems. When we were moving here we called at least eight realtors asking to see homes and let them know we were ready to sign a contract. Eight, and only one would see us, take us to see homes or call us back if we left a message. I don't know how in the world homes get sold here. And buying the house? OMG it was hell! Once we signed that contract and paid the down payment in earnest money, we couldn't get in touch with her for anything. It was horrible!
Quote:
Originally Posted by Donn2390
There are loan servicing companies that will do all the paperwork for you for a small fee. They do the contract and collect the rent, do the year end tax paperwork, everything that needs to be done that a mortgage company would do if you borrowed from them. It's very inexpensive. Last time it did it, it costs a couple of hundred to set up the account, and a few bucks a month to service the account, which I charge the buyer for. It's a great deal for the sellar, asyou will make all the interest money the bank usually makes. It's a great deal for the buyer because there are far fewer fees than a mortgage company charges a borrower, and it's a lot easier for them to qualify for the loan.
If you get a good down payment, the worst that could happen is they default and you reposses the place and keep the down and all monthly payments made up to the time they were to default.
I would gladly carry a loan like that any day, that is where all the money is made. That's why investors love to buy up second mortgages, there is big money to be made doing so..
We are planning on sending the bank the mortgage payment each month ourself as we always have. Could we still use a service like that to collect the money from them and they send it to us minus the fees? I've never heard of a company like that.
Quote:
Originally Posted by Willy702
I love these kinds of deals. Usually you can start them out as lease to own which builds a nice profit in and then you get well above market rate interest which after a little seasoning either gets refinanced by the buyers or you can sell the paper for profit. Key is to think like a landlord, check references fo what they did to other properties they lived in and then treat everything like rent. Rent is never fixed so neither should your loan terms. Do a hybrid of an ARM. Something like a fixed 2 yr payment and then a reset works well because it motivates the buyers to keep their credit noses clean so they can refi. Everyone wins in that situation.
We're planning on doing a two or three year balloon mortgage. Thinking if someone has a car payment or something they want to knock out before applying for a loan it would benefit them. So we'd have enough for us to move with the down payment and then in two or three years we'd have the rest of the money from the sale of the house when they obtain their own financing. I'd bought my second home that way a looooooooong time ago.
I really can't see nayone having 40K down payi ga rent to own fiancing. Most only go that option if they do not ahve the money for conventional or can't qauilfy really.
I really can't see nayone having 40K down payi ga rent to own fiancing. Most only go that option if they do not ahve the money for conventional or can't qauilfy really.
And that's a possibility. The idea of the owner finance is geared toward someone in a good financial situation that's been saving for a home already and wants to give themselves a bit of extra time before they apply for a loan to pay off any credit card debt or college / car loans.
But you're right. It's quite possible no one will have that as a down payment. There's always standard financing if they qualify.
Not sure what the market there is for owner finance that requires 40 grand down and a balloon payment which is normally a loan established at the end of 2 years for payoff.
I'd also think a fsbo wouldn't reach as many prospective buyers in that price range as a realtor listed property.
I've bought and sold owner finance properties but never one with that high a down payment so I don't know how that will work out for you.
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