Good morning BP.  Someone has made an offer on a home I am selling and they are asking me to owner finance.  I have not experience with this so I am asking the BP community.  The home is on sale for 57k he wants to put down 12k and owner finance the rest.  Basically make payments to me as the bank.  I get this much.  What I need a little assistance with is coming up with terms.  How long should the length of terms be?  Do I calculate the interest payment on the entire 57k or on the remaining 45k?  Standard bank loan is 4% do I go with what is standard or is it typical to have a higher interest percentage when doing a owner finance?  If he does default, what is that process?  

Any input would be greatly appreciated.  

Thanks,

Mel

@Mel Hayes need to sign a promissory note $45000 secured by the property and record it. Terms are negotiable. He doesn't have to qualify so I would ask for a higher interest rate 6% amortized over 30 balloon in 5 years. using my loan calculator you would get $270 a month and a balloon of $41874. If the interest rate goes up after 5 years you can write another note. Since you are the bank make sure he has insurance on the property and get notifications if he drops his insurance, Might put that in a clause in the promissory note.

Originally posted by @Tim Herman :

@Mel Hayes need to sign a promissory note $45000 secured by the property and record it. Terms are negotiable. He doesn't have to qualify so I would ask for a higher interest rate 6% amortized over 30 balloon in 5 years. using my loan calculator you would get $270 a month and a balloon of $41874. If the interest rate goes up after 5 years you can write another note. Since you are the bank make sure he has insurance on the property and get notifications if he drops his insurance, Might put that in a clause in the promissory note.

 What @Mel says is correct. Have an attorney draw up the paperwork.

@Tim Herman Thank you for your reply Tim.  To clarify, he is paying 6% on the 45k correct?  At the end of the 5 years if he can not pay the balloon payment can that be seen as a default?

@Mel Hayes yes on 45k and he would be in default. You would have to start foreclosure on him.