Owner Financing Available on this Country Estate Home
$250,000
Hi folks. What happens when lending guidelines tighten even further? What do folks do that have just gone through a Short Sale or foreclosure? How are Buyers going to be able to purchase a home now that their credit is shot? How are you going to be able to sell your home?
Well how about offer financing?
Let's look at the numbers. You own a home worth $100,000. If you had no mortgage on it and sold it the numbers would look like this.
Purchase price $ 100,000
Real Estate Com ( 6,000)
Tax Stamps ( 700)
Title Insurance ( 1,000)
Misc. ( 100)
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NET $ 92,200
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Now what if you held financing for 5 years instead. First you'd be able to get a little more for the property since more Buyers would qualify. In fact it's very possible to get 10% to 20% more. but for the purpose of this illustration let's use 10%. Let's also use a 25% down payment with the balance being amortized over 30 years at 8.25% with a balloon payment in 5 years. OK here goes....
Purchase price of $ 110,000
Real Estate Com ( 6,600)
Tax Stamps ( 770)
Title Insurance ( 1,050)
Misc. ( 100)
Held Mortgage ( 82,500)
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NET $ 18,980 at closing
60 Payments of $620 37,200
Balloon Payment 78,700
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5 Year NET $ 134,880
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The difference is $42,680 or 46.3% for waiting 5 years. That's a pretty big deal. These numbers also work if you are considering renting the property out. The Seller financing is usually a better deal.
***Of course you should discuss this with your Attorney and CPA before making a decision.
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And if the buyer defaults before the 5 yrs are up.......well?
Hi Bryant!
I really liked this post. When I first started selling homes in Texas 1990 there were a lot of homeowners who were underwater and they came up with all kinds of creative ways to move the property. Tiffany
Neal. We are asking for and getting 20% to 40% down. If they default either the seller gets the house back or gets paid off when it sells at auction. We don't do low down deals.
Tiffany. I believe we'll be seeing a lot more of this as getting mortgages becomes more difficult.
We work with lease options on the our rental side, kind of like the buyer financed, but generally shorter term. In a situation like that they have put money donw and/or are paying extra each month towards the purchase. If in the end the default, then the all th option money stays with the seller. Granted he/they haven't sold the home, but could re-rent it or try to sell it once again.
HA! It's that old "great minds think alike" thing again.
I have an appointment with an attorney next week to get up to date on various owner financing in Virginia.
Interesting.
I've done a number of land installment contracts and owner financed sales in MD, but nothing in VA.
I believe there will be a market for it.
One should look into the "SAFE act" to ensure compliance when selling with owner financing. Like Bryant said, always consult an attorney and CPA, and if you're in Bryant's neck of the woods always consult Bryant and TLW.
What's old is new again? Back in the late 70's and early 80's people couldn't or wouldnt get mortgages at 18% so owner financing was common.
Also remember that all of those zillions of FHA loans out there are assumable with qualifying. Look at assumptions and seller 2nd mortgages to get some of those moved.
I have 2 houses listed with owner financing available. Only problem I have is that everyone still wants to pay just 3-5% down payment. This won't even cover closing costs and commissions for the seller and thus the seller would have to bring money to the table to sell. Even the buyer agents seem to have trouble grasping why the seller wouldn't want to do this. The seller needs to get enough down to cover their closing expenses and have a little cushion in case they have to foreclose.
This looks like it might be a good idea for some folks, but in my area, we have so many short sales and sellers just don't have the equity to be able to do this. But it is a great tool to have in the real estate tool kit.
Debra Davis
I think there is definitely a market for this here in Central Florida. I get a call every couple of weeks from buyers looking for owner financed homes. Many of them don't have enough to put down, so I tell them to save for awhile and then we'll get to work finding them a home. The numbers don't lie, it's good for the seller and it's good for the buyer.
I've gotten a couple of my buyers sweet terms on owner financing this year. There is definitely a market for it =)
It will definitely become more popular when the rates start going back up again. When that will be is anyones guess, but in my opinion inflation is right around the corner....
Excellent idea for those who have the down payment. With the prices in Poinciana the deals could really be attractive for the buyer!
A friend of mine is buying all the owner financed deals he can find, and renting with cash flow.
I've only had one seller recently offer owner financing. The buyer didn't take him up on it and is still going thru lenders to make it to the closing table. I'm holding my breath.
I've done one deal this year with owner financing on a 5-year balloon. And the winner is "me"! It was my property. That 5% interest is my sweetest investment with the DOW Jones tanking.