Real Estate Investor · Coconut Creek, FL · Member since 2013 · 97 posts · 35 votes
I'm looking at a multiunit property and the owner is willing to do owner financing. I have some knowledge but I never walk this route before. Is there a down payment, does the owner run your credit? Will the bank know the owner is doing it? What are the stipulations with going this route?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Here is a quick primer: Owner financing is when a seller offers to carry a note on the home, thus, rather than getting bank financing or some other type of financing, you can purchase with "seller financing".
The biggest benefit is the availability of borrowed capital and often, the terms can be quite nice, of course, the better negotiator you are, the better deal you can get.
Downside? I really dont see much of a downside, it is one of the best financing options around.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Here is a quick primer: Owner financing is when a seller offers to carry a note on the home, thus, rather than getting bank financing or some other type of financing, you can purchase with "seller financing".
The biggest benefit is the availability of borrowed capital and often, the terms can be quite nice, of course, the better negotiator you are, the better deal you can get.
Downside? I really dont see much of a downside, it is one of the best financing options around.
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
13y
Hey Jordan,
Congrats on putting in the RE work, woot! But here is the deal with owner financing:
1. There is a down payment. Same as a bank.
2. The owner SHOULD run a credit check for sure to protect themselves.
3. The bank should have no involvement.
Stipulations are that the owner becomes the bank and the holder or the note that's on the house you are buying. The benefits are that you don't have to jump through the hoops a banks would have you. If you default he or she get the house back and you forfeit all other monies and payments made. I hope that helps!
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
13y
Hey, just seeing the second set of questions.
1. You wouldn't own the note, the owner would.
2. The house is all yours once the loan amount has been repaid.
3. Down payment is NEG. Owner typically has the say since he or she is the lender in this situation. Credit score and income also help with the owners decision. Just like with a bank, the higher the two, the higher the trust in payback and hopefully the lowered the down payment and and monthly payment.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Jordan there are a lot of different ways to structure owner financing, so you really won't be able to get better answers until you(and we) know more.
The terms will be up to the person giving the financing, and what they're looking to get out of the deal. That being said the purchase price, down payment, term, interest, balloon (if there is one) and prepayment are all up for negotiation.
You won't own the note, the seller of the property will. He will essentially will be trading the property to you in exchange for holding a loan (note) that you are required to pay. If you stop then he would foreclose and take back the property just like any other lender would.
If you were to purchase the note from the owner you would now own the debt that you owe on your property...It would be like buying the mortgage to your house from the bank...I'm a little confused as to what you want to do there
Real Estate Investor · Coconut Creek, FL · Member since 2013 · 97 posts · 35 votes
13y
I will be meeting with the seller in the next week, however how can I trust that the selleris making payments to the actual mortgage? This is something I should consider as well.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Do you know that the seller has a mortgage currently? I've sold 2 properties on OF that I bought cash, so no underlying mortgage to worry about for my buyers.
If he does then you are looking at a specific type of OF called "subject to" or "sub2", search both of those terms up in the top right to learn about it.
The biggest concern there is the possibility of the bank "calling the note" which means they've decided to accelerate the loan and you now have to pay the full amount off or they foreclose.
The other concern is the seller not making the bank payment and letting the property foreclose while taking your money. The easiest solution for that is to have the notd serviced by a third party. You would pay the servicer they would send the mortgage payment to the bank and the seller's portion to him. Keeps everybody honest and prevents people from getting sticky fingers.
Real Estate Investor · Coconut Creek, FL · Member since 2013 · 97 posts · 35 votes
13y
You all great with your quick responses. If this is the route I decide to go, I would like this to be service by a third party provider. It will even be better if they own the house free and clear!
Orlando, FL · Member since 2013 · 165 posts · 62 votes
13y
Jordan Don't overcomplicate this. You give the seller whatever down payment you both agree to. He gives you the deed to the property. You own the same as if you had gone to the bank and begged them to lend you the money. This is about a hundred times better than bank financing. Get title insurance at the title company of YOUR choice. Read this http://www.ronclimer.blogspot.com/2013/04/seven-reasons-why-i-love-owner-financing.html There is no better way to buy than owner financing.
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
13y
Jordan Lives:
All has been said .. and normally I would site quietly on the bench, but it does sound like you are thinking too much about this financing offer. Ron Climer is right ... the deal goes down like any other property purchase, the *only* difference being the Vendor will be the mortgagee rather than the bank.
I love vendor financing and often pitch it to the vendor as the win-win scenario it is. Yes, I may pay one to two points more in interest {but quite often not}, but there is no bank bureaucracy ... specifically the deal does not count towards that imaginary number the bank has about how many mortgages one person/company should really hold ;-)
From the vendor's perspective, they get an interest rate on their money that is better than they could in a bond or money market fund and, at least here in Canada, they have an opportunity to defer a portion of the capital gains realised on disposition.