Seller Financing Scenario - Need Advice

8 Replies

Hi all,

My mother is selling her house to her other son in Hendricks County Indiana (Just SW of Indy).  I thought to myself, how can she give a good deal and still make good money?  I thought seller financing might be the answer in this situation.  Please give me your thoughts on this scenario and suggestions on how you'd structure the deal.  Since she has a mortgage, can she utilize seller financing? 

She currently owes 138K on the mortgage.

The AS IS value is 230K

The ARV value is roughly 260K

She is 65 years old.

Your response is greatly appreciated!

@Darren Day She can, but she is not supposed to sell the property without paying off her mortgage. There is no benefit to her for financing unless she will make a lot of interest, but that will take years. She will also make interest if she takes the equity at closing and invests it in something else. I would have him get financing on his own because if he doesn't pay, is she willing to foreclose and kick him out? It happens.

@Anthony Dooley Thank you.  Ah yes, the infamous due on sale clause.  She is not the investor type and looking more for a retirement income.  I was thinking 10-20% down, 15 year note at 4% and she could work on paying the 1st mortgage then once that is paid then the note would be free and clear.     

@Darren Day I would rather my mother take the $100K in cash at closing than get a few hundred dollars extra per month, assuming that he pays. I would advise her on investing into a mutual fund that could earn 8-10% annually on her $100K, but otherwise, she can just use it as needed from checking account.

I've purchased many seller financed properties. Also sold some that way, too.

The best rate I get is 6% and I have excellent credit, references and larger down payments.  4% is just too low. Lower than banks can offer.

Since you haven't  mentioned the other son's credit, job, ability to pay- I'll assume he can't qualify. If you're going to ask your mother to sell her cap gain tax exempt primary residence on payments, at least let her make some interest.  It will help offset the cost and drama when this thing blows up.  

At least none of you have ever done one of these before. Thanksgiving dinner is about to get a lot more interesting for all of you.

Have your brother assume the loan. If his credit isn’t good enough, have him assume the loan with your Mom Co-signing and include a contingency that in the event of default she reassumed the debt and the deed. I think this can be structured as a land contract. Or you can have an attorney write up a contract if the bank agrees

Have her son pay a down payment and a monthly spread that helps her until he can
get his own loan. Make it tough on him up front so he does not take advantage of her.

@Anthony Dooley

@Steve Vaughan

@Ali Hashemi

@Andy Rumple

Thank you guys, I really appreciate your time.  I apologize, I should've explained more in the initial post. My brother is selling his home and it's under contract.  Both he and his wife are high wage earners and they will have no problem financing the purchase.  They are a well rounded and responsible (good credit) family and he has done most of the maintenance and large repairs over the 15 years she's lived there. They wanted to move to the same town as my mom and my mom wants out of the house that needs lots of updating and continued maintenance.  I was wondering if seller financing could be a way to give my brother a better price and my mother more profit.  However, I'm not thinking this is a good idea because  of the tax free capital and it's probably just better for this type of exchange to be done quickly.  Just wanted to brainstorm if there are any creative ways to help in this type of exchange.  The only thing I've suggested so far is to leave the realtors out of the equation to at least save that money.  Any suggestions?  Thanks again!

Hello Darren!  I tend to agree with her using owner financing as a way to do it.  As far as I know there is no reason not to do that with her son and to make more money.  The only thing is, that her mortgage could have a "due on sale" clause that allows them to be paid any balance owed.  That is not usually enforced as long as they get paid on time.  Unless she trusts the new owner will make their payments on time.  He also may be told that he should make those payments instead of her which is OK but the payment receiver might notice that the payment is from somebody else  and make their boss aware of that and he may enforce that clause of the full balance due clause.  That is rarely done and enforced.  They could do a forced loan balance payment but that is rarely done from what I have heard.  They could do a "subject to" or a "lease option" transaction depending on their personal needs and title position need and how much they trust each other.  The equity she has could weigh in to her final position.  Best wishes!