Seller financing for family members

6 Replies

Hi everyone - we've owned a property for the past 10 years that we rent to family members. We charge them less than the mortgage, but with the tax benefits we end up breaking about even every year, so it's not an asset but it's not losing (much) money. We're now in a situation where we'd like to get rid of it to free up some of our mortgage options, though our family still wants to live in the house. I think seller-financing might be the way to go here, since they would have a hard time qualifying for any type of loan. The house has just finally become above-water after the recession, so we pretty much owe exactly what the house is worth at this point. 

My question is, how would seller-financing work in this situation? We still have a mortgage on the property, and the rent they've been paying is less than the mortgage payments. We're really not trying to make money off the deal, we're really just trying to unload this without losing money. Any advice is much appreciated!

my guess is it would be against the terms of your mortgage but maybe not 

If you seller finance them but don't pay off your mortgage it won't really "free up some of our mortgage options".  You're subsidizing their living arrangements and even after 10 years they can't qualify for a mortgage?  I'm sure you have your reasons for this arrangement, but you seem kind of stuck.

Realize that if the property is worth just about what you owe and you sell via a real estate agent that your costs will be about 8% of the selling price, so you're really still underwater. If you just gifted your relatives 6% of the sales price, could they qualify for an FHA loan? That would cover their down payment and closing costs and you would pay your closing costs.

Thanks for the replies, I need to look into loan options for those on disability assistance & with little income - looks like the only way to do seller financing in this case would be to get them to qualify for a loan so that mortgage could get paid off.

Hi @Haley M.  

I don't see how you could do seller financing.

For the buyer, seller financing is very similar to bank financing except that the seller (you) is now the lender.

You could have done seller financing if you owned the house free and clear.

But considering you have a mortgage on the house, you can't really extend a secured loan to your family collateralized on the house without paying off your lender.

Ultimately, it seems like you really want to help your family member while no longer having that house as a liability.

I am not sure if you have looked at it, but if I were you, I would check with a mortgage broker if there is any way they could get a loan in their own name.

I imagine rates have gone down since you bought it, so they could have lower monthly repayment and if they really cannot afford the down payment.

Assuming that they have always paid their rent on time for the past years that you have had them tenant, the main concern would be coming up with a down payment.

Ultimately, I see great benefits in shifting your liabilties and getting rid of that property and sellling it to them.

Considering that the amount owed on the house is what it is worth now, you would saved real estate commissions by selling it to them.

Those savings could be used towards their down payment maybe?

Good luck!

Thanks for your input @Patrice Penda . I'm going to find a way to get them a loan - I'm sure there is a rock I haven't looked under yet! It's a complicated situation and obviously there's emotion involved since it's family, but I know there's a solution.

Hi @Haley M. You may want to call TD Bank and ask them about their "Right Step Mortgage" program, its designed for first time home buyers, and I believe only requires 3% down payment, and does not charge PMI. Also, I think the Interest rate is very low (I think its in the 3% range) which may help them keep the mortgage payment down to a similar level as what you are charging them for rent. Their are income requirement for the loan so this may be up their alley. Good Luck!

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