I am in the process of crafting a seller financed deal on an improved land lot to serve as a vacation rental. It is in an area with a strong and proven tourism industry. The improvements are: approved building lot, underground electric and cable in place, a good perc test, and a gravel drive way to potential home site. It all fits into my model well.
The owner is willing to finance and is asking about what terms I'm thinking about. I did find a credit union willing to finance land with 25% down at 7% interest for 10 years. Although I have strong credit and could do bank financing, I would prefer seller financing as it keeps my credit and DTI clean leaving me open for other financing if i need it in the future.
What do typical seller financed deals look like...I don't want to present something really off base and insult the owner. What are the typical interest rates and length of loan on seller financed deals? How is the deed handled with seller financing...does it transfer to me as the new owner at the onset of payments like a regular home purchase with a mortgage?
I do not plan on working with a buyer's agent as I have already done the leg work for the property. I will use an attorney to draw up the necessary documents when the time comes.
I have done a few owner finance deals in the past as a realtor. from my experience.. the down payment really varies greatly. I usually see a rate that compares somewhat with banks, sometimes the owner financed rate is higher since they are acting as the bank (doing you a favor). I calculate the remaining balance after down payment on a mortgage calculator over a 15-25 yr term to get the payments somewhat reasonable, and then add a balloon payment in 5-7 years that is due from buyer (by this point, the buyer can go to the bank and refinance). If the property is currently paid off, then you can do a contract for deed, and have it drawn up and recorded by a closing atty (that's how we've handled it in south carolina). Again, this is just my 2 cents. Hope that helps.
If you searched all about seller financed deals, the one thing that you find typical about them is that there is no typical seller financing. It's completely up to you and the seller to determine the terms of the financing. Personally, I would try to get better terms than the credit union is willing to offer and see if you can start your negotiations there.
If you're unsure of what the seller is comfortable with, I would suggest having a more candid conversation with the seller regarding what they are looking for. Are they looking for some cash up front now? How much? Are they fine with just getting a monthly payment and not a large deposit? How long would they be willing to hold a note? Ideally, you would love to get 100% financing at 5% interest only payments, and there might be people out there who would do it too. But you should be able to get a better feel for what the seller is comfortable with if you have that conversation with them.
Going by the credit union option, to do better you could offer to do a 20% down payment at 6% interest, with interest only payments on a 5 year balloon. 5 years should be enough time for you to figure out more permanent financing, and have taken advantage of the generous terms the seller is offering.
Good luck, and let us know what you work out!