Welcome to Owner-Financing.com
Owner financing is a great tool, which, when used properly, offers benefits to both buyer and seller. Like all tools it can also cause damage to buyers and sellers. The purpose of this website is to provide an introduction to the risks and rewards of seller financing plus some ideas for creative ways to make it successful for both parties.
When home sales slow down seller financing as a sales tool always becomes more popular. Problems occur when desperate sellers, driven by the need to sell immediately, get talked into providing owner financing without really understanding the risks or the process. They frequently bypasses some of the steps in the normal home sales process, especially those which protect the seller. When problems arise, and they ALWAYS do, naive sellers don’t know what to do and may not have the paperwork needed to protect their position.
I know people who can hardly wait for the downturn to really take hold because they know the boom in owner financing will create opportunities for them to profit. You do NOT want to find yourself unprepared for dealing with them! If you educate yourself about owner financing before you negotiate the deal and create the documents, you will be in a position of strength. Use the links at the left to inform yourself about owner financing, but keep in mind whole books are written about seller financing and lawyers sometimes make a career out of specializing in this area. When real money is on the table, professional advice should always be obtained.
Seller financing doesn’t have to be a win/loose situation. Your hourly pay rate for taking the time to educate yourself about owner financing ahead of time will be very high.
{ 13 comments… read them below or add one }
Can you owner finance when you have a current mortgage with an alienation clause?
Can? Yes. Should? Maybe not. Currently the mortgage lending business is in a giant state of uproar and I don’t think anyone knows what might happen in any given situation. For example, I am reading about home buyers who quit making mortgage payments years ago who are still living in the property.
To answer your specific question, you could sell that way but the mortgage holder would have the right to call the note, making it all due immediately. That would leave you in a really ugly situation with the buyer you sold to. Selling this way would also mean you are still obligated for the mortgage payments. If the new buyer doesn’t pay you, can you make the payments while you foreclose them?
Real estate is surprisingly local and some parts of the USA have been hit much harder than others. How mortgage companies are handling things varies locally. If you think selling this way offers a solution you need to use I would strongly suggest spending some money with a local attorney who specializes in and is active with local real estate. They will be able to offer specific suggestions based on local practice.
I am a realtor in Puerto Rico and would like to know if this is a viable financing tool in Puerto Rico. I have contacted a local attorney, and as you suggest, indicates that it is doable in accordance with local practice.
As indicated above, this financing tool can be used within the framework of local practice in Puerto Rico. Are there any statistics for PR showing owner financing as an option.
I think owner financing is such a small percentage of the total housing financing business it is invisible. I am not aware of any statistics that discuss it.
I am about to purchase a house from my father that was my grandmothers and is 100% paid off. I was thinking about doing an “owner finance” transaction and try to get a lower rate from my father than I wold get at a bank. This way I am saving money and the money I would be giving in interest would go to my father instead of the bank so he would be making money. Do you think this is a good idea? Who would own the property him or me? Any other advice you can give would be greatly appreciated!
We bought our first home using $5,000 borrowed from my grandmother as the down payment. In those days (1971) that was 25% down!! It worked out well for us. She got more interest than she was getting at the bank and we were able to buy a house we could not have purchased otherwise. I think it is an example of how family can make you stronger with benefits for all.
Since related party transactions like this are a frequent source of tax fraud you will want to make sure you get a neutral thirds parties written estimate of value. Not necessarily a complete appraisal, but something written that shows a reasonable method of determining value.
Since the house came from your grandmother it may have been a long time since there has been a title search. If that is the case I would strongly recommend title insurance as part of the purchase. That will find any problems now, when they can be more easily resolved.
Of course there are some potential problems too. For example, you do something dumb and end up with a tax lien on the house, or don’t pay, etc. You didn’t mention if you had siblings, but they can also be a problem. For example, one of them needs to borrow some money from mom and dad but they can’t make the loan because all their equity is tied up in the house loan. Or something happens to mom and dad and now the other heirs want their money in cash.
You will want to use an attorney to draft agreements that cover those issues but here are a couple of ideas that might help.
Create more than one note. Make the first position note a smaller amount, say 20% of the purchase price. Make the term short and the interest rate high. Create a second note for the balance with a much longer term, less interest, and payments that don’t start until the first is paid. That way if mom & dad and/or heirs need cash there is a note that can be sold without taking much of a discount.
You could also create a note for each potential heir with the same terms and payment on each. Then if one of them wants/needs cash they can sell their note and get on with their life. Make sure you have a right of first refusal at the same price and terms before any note can be sold outside the family.
Good luck with it.
I have a buyer interested in buying my house. I will hold the mortgage for them (I don’t have a mortgage) but I really don’t know what, if any, to have in the contract. The buyers are willing to buy the house “As IS” and that’s a great plus since it needs work that I can’t afford. They have two young children. Can I evict them if they default on the “mortgage” I will be holding with the children in the picture? What are the down falls of this? They will be buying with her parents and their credit is excellent. The contract would be in their names. How long does thies “owner financing” usually be for? Thanks.
Hummm…what does “awaiting moderation” mean??
You would not believe the number of junk comments which are submitted. Most are obscene and link back to sites you would not want to visit. So I have the system set to email mail me whenever a new comment, that made it through the junk filter, arrives on the site. I usually release it from moderation and then write a reply. I saw your comment go up a few minutes ago and am working on a rely.