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In short my wife and I are coming out of a debt situation and things look good. Steady income, most of our debts are paid off or under control. Problem is our credit took a beating, bad.
We are looking to buying a home in about 9-12 months and know the regular mortgage process will be difficult. We are looking at seller financing. I would like to hear back from those who have been involved, both buyers & sellers, about this. I know there is a ton of generic info if you do a Google search. I know about getting an attorney, making sure there are no liens, etc. I have purchased a few houses in the past.
I am looking to see what the requirements are by a seller for seller financing? What are they looking for in credit, rent/mortgage history, income, down payment, terms, etc. I realize this may be a broad question due to the unique nature of every seller, but I am trying to get an idea as to what we need to have ready.
A bank or other regular mortgage lender can spread risk across a portfolio of loans. Someone providing private financing is taking a substantial individual risk. So, even if your credit is fairly good, expect a higher than market interest rate. If your credit is fairly poor, expect a tremendously higher interest rate. If you're in a jurisdiction that has usury laws setting maximum rates, expect a significant price premium to offset the limited interest rate.
In either situation, and again depending on the jurisdiction, you'll probably not have a mortgage as security for your payment. Instead you'll have a "contract for deed" or "real estate installment contract." The seller will retain legal title and only upon full, final payment will you get a deed. You'll be subject, again depending upon the jurisdiction, to rapid default remedies and short, or nonexistent, redemption periods. Many states allow forfeiture provisions in such contracts. You miss a payment, default is declared, the contract is foreclosed in a matter of weeks, you will have to pay in full in a matter of weeks if not days, and failing that you forfeit everything you've paid, you're tossed out of possession, and the seller gets everything back.
That all said, owner financing is available...but be prepared to pay and suffer speedy consequences if you don't.
First step is that you find some real loser of a property that they can't unload to anyone else AND where it's owned outright by the seller.
Then you convince the owner that to accepting your minimal down payment is enough to justify giving you the keys on your promise to make (30 year amortization) payments for a while as you get your act credit together and apply for a traditional mortgage... which you're just certain will happen before the 5 years are up and you have to make that final big balloon payment.
I carried the people who bought my previous house. It was his 2nd marriage and he couldn't get financed, not sure why. He had finished his probationary year as a college professor and I thought that was a good sign. I had a job on the other side of the country. My attorney drew up the papers and amortization schedule.
It turned out to be a good deal for both of us. I offered them the going rate and when they sold the house in 5 yrs, they had paid mostly interest so I got almost all the selling price. They were required to carry a certain amount of homeowner's insurance, to pay off if something catastrophic happened.
Well there seems to be a lot of bad if you default, not as much protection. I get that.
Lets go on the assumption that you are actually paying this on time no issues, great relationship. So worst case is a slightly higher interest rate or cost of the home? So how is a few extra dollar bad here?
We entered into an owner financing contract with the seller of the property that we are currently living on now and it worked out perfectly. Of course, we had to make sure that we didn't miss any payments and that we paid those on time. We were able to get great terms as they really didn't want to continue to sit on the land any longer than they had to. AND this was all before the economic down turn...
Anyway, there are a few things that you will really need to take into consideration and make sure to avoid. First and foremost, I wouldn't enter into an owner financing arrangement if there was a mortgage on the property that the seller was going to continue to pay. 1. You are relying on them making that payment every month and not just walking away with the money that you're paying them and letting the bank foreclose on the property. 2. There are clauses in almost all mortgages that state that if the property is sold that the loan can be called and due immediately. (There are some ways around this, but that's a different story all together.) Also, make sure that you are responsible for paying the taxes and insurance on the property, for pretty much the same reasons as I stated above with regard to the mortgage payments.
There are certainly many ways that you can get burned (and the seller too if you aren't honest) so, make sure that everything's in writing and that you have a good attorney working for you to make sure that everything's in order and done correctly.
Extra dollars = bad. Less dollars = good. So while you may be fine with paying more, I think your question is a bit odd.
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