My husband and I are in a position to offer our first owner financing deal! School me on any experience you've had as far as terms and conditions go to help us structure a deal where our bases are covered!
The property is a single family detached dwelling.
We're asking $125k and wanting 10% down. We will most likely not be doing more than 3 of these this year, but would like to comply with Dodd Frank, just in case!
We are thinking of charging 6% in interest and amortizing over 30 years. Do you suggest an incentive for buyers to refi after a set period (say, 2 years) in the form of an ARM that will adjust up after said time?
Logistically, how does this play out for us/buyer? I'm assuming the monthly payment (minus taxes and insurance) will go to us and the buyer is to secure their own insurance and pay taxes themselves as well. Or, do you suggest including taxes in the monthly payment?
Regarding terms of payment: How do you word in your contract payment and default details? We're wanting to protect ourselves as much as possible without being unfair to the buyers.
Any advice is much appreciated! Thank you in advance!!
Hi there, There's so many Dodd Frank discussions on owner financing to an owner occupant that it makes no sense to duplicate here. From your post it seems the borrower will be the occupant so Dodd Frank is in play.
Here's the short story where you'll need to look up the terms.
- the borrower must meet new ability to repay requirements, starting with having a DTI of 43% or better. You can do a kitchen table walk through with the borrower going over income, all debt, figure in the new mortgage payment (PITI).
- Once it seems the borrower will pass ability to repay DTI requirements. Find a Licensed Mortgage Loan Originator that you hire to originate the mortgage. Call around to your local real estate attorney's offices asking for a LMLO.
- Someone will have to refresh my memory re ARM nearest in reset period? I don't remember how soon you can reset now under Dodd Frank.
- After closing please use a loan servicer and yes escrow taxes and insurance. This is what servicers do for you. I use trustfci.com. $30/mo when you escrow. Tell the LMLO and closing attorney to add in the servicing fee to the mortgage payment. The servicer is really to protect the borrower anyway but it does take away ALOT of legal issues from the lender (you).
FWIW the US national average for time spent in one house is 7 yrs. So probability will be in your favor that some life's event will force the borrower to sell and cash you out around 7 yrs or so from now. :)
The closing attorney will have standard boiler plate mortgage documents so you don't need to fool with that.
The buyer will find insurance before closing and have proof of binding given to you. It would be best that the buyer pay for the insurance out of pocket, but have escrow pay for renewals. Otherwise someone will have to advance the escrow account to cover that shortfall if the buyer doesn't pay for it out of pocket initially.
Thank you so much for the insight! We've gotten a lot of interest on the property just based on the fact we're advertising owner financing. It's an exciting new world!
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