Owner Financing

[Instrument 41]

Looking for some Pelican wisdom from the brain trust.
I am looking for info on the pitfalls of buying a house via owner financing. Background; divorced have a few credit dings. Could get conventional bank loan but at a higher interest rate. Putting about $80K down. Have found a house that, so far, they are willing to do this, still waiting on one more heir's approval. So for my protection what should I look out for??

[gr8fl4porsche]

Not sure about the pitfalls but I have been using owner financing on a vacant lot for 6 years now. Getting ready to list it to try and cash in to finance another large home improvement project.

We had a lawyer draw up the documents for a few hundred bucks and went through a title company.

[GH85Carrera]

When I bought my first house back in the days of Jimmy Carter banks wanted 15% and up for a mortgage. The guy I bought my house from was 72 years old and did a 30 year note for "only" 12.5%. After I looked at the amortization I decided on a 20 year note. The cool part was that I looked at the house on the 2nd day of the month, and moved into my house on the 10th.

It will all depend on how your contract is written up. The biggest pain will be the property taxes and insurance. Most owners don't want to mess with an escrow.

[stomachmonkey]

Owner financing can be a win win for everyone.

I like the concept.

Just get a good attorney and write the contracts properly.

[Porsche-O-Phile]

I;ve looked into it also and see little downside - get a lawyer to review the agreement if there's anything at all confusing though.

As a general rule, anytime you can cut a bank out of the loop, everyone else wins.

[masraum]

I'd absolutely LOVE to sell some stuff via owner financing. Wow. Buy a 100,000 house, finance and at the end of 30 years they've paid you somewhere between 250,000 and 350,000. I like it.

[Porsche-O-Phile]

The buyer would have title to your house however (unless you're doing an extended-term purchase option arrangement of some sort) and if the buyer defaults (which is a big concern these days with rampant job losses in all sectors), you'd have to negotiate foreclosure proceedings as a private individual, which I'm sure isn't all that easy. Possible downside as the seller. Just something to think about, but as a general rule I think that purchase/options or owner-will-carry arrangements have a lot of potential upside for both parties: no banks, no real estate agent commissions, no complicated approval processes, etc. The buyer can usually get in with a lot less money down and the seller can make a lot more money off the sale long-term.

I'm actually really surprised these haven't made a bigger comeback in this downturn than they have - but maybe that's still coming.

[Rick V]

All my rental houses were bought that way. I would do it again in a heartbeat

[Rick Lee]

When I was in the biz, most mortgage companies charged .25 points to waive escrows. Say your escrows on a $250k loan would be 1% per year ($2000 for taxes and $500 for homeowners insurance), well, you could pay the .25 pts. and make that money back pretty quickly, depending on how disciplined you are and if you can get a decent return on that money somewhere else. With a wrap-around mortgage, you probably have to pay no escrow waiver and just take care of your taxes and homeowner's insur. yourself. If you start a CD or money market and are pretty disciplined about it, you can come out ahead pretty quickly.

[Instrument 41]

Thanks for the "food for thought". As a sideline to this I just left the bank and of course they don't think its a good idea. Duh... But he did say something that has got me thinking. I asked about inflation or hyper inflation. He said that this more a probability than a possibility. So IF I do the deal based off a 3 to 5 year balloon note and we are in inflation and rates are 11% then I am really screwed?? How do feel about that scenario?

[Rick Lee]

The way things are looking now, I wouldn't touch a balloon loan unless I knew I could pay it off when it came due. Refi business will go away when rates skyrocket.

[m21sniper]

Originally Posted by Instrument 41

Thanks for the "food for thought". As a sideline to this I just left the bank and of course they don't think its a good idea. Duh... But he did say something that has got me thinking. I asked about inflation or hyper inflation. He said that this more a probability than a possibility. So IF I do the deal based off a 3 to 5 year balloon note and we are in inflation and rates are 11% then I am really screwed?? How do feel about that scenario?

Don't ever tie yourself to a balloon payment.

[rammstein]

Originally Posted by rick lee

the way things are looking now, i wouldn't touch a balloon loan unless i knew i could pay it off when it came due. Refi business will go away when rates skyrocket.

+1

[berettafan]

no baloon payments on principal residences!!!!!

[Porsche-O-Phile]

+1.

Never, ever, ever.

Look into an FHA.