Owner financing, what is a good deal?

Question

What’s going on guys? Just starting my investing journey. Wanting to house hack and buy a duplex and live in one side. I currently have my house for sale and I don’t have much equity in it. Roughly 15k after I pay closing etc. I have my eye on a duplex. It’s in the flood zone so to get out of that I’d like to do owner financing but not sure how to negotiate the terms on that. What’s a good interest rate? How long are the terms for owner financing? Any other advice would be great, thanks!!!

Jaysen Medhurst · Answer

@Ethan Board, good on you for looking at a house hack. Great way to go.

My 1st questions is, why do you think you'll "get out of" the flood zone with owner financing? Do you you mean get out of having to carry flood insurance? Unless the current owner is a moron, they will require that in any financing they provide. It's not like they don't know they are in a flood zone.

In terms of rate and terms, it's all open. That's the cool thing about owner financing you can propose and negotiate anything, as long as it's legal. If you're trying to do no money down, expect to pay a higher rate than you would from a bank. I think a good approach is to figure out what you're comfortable paying monthly and then reverse engineer an offer based on that. 30 years at 8.5% is about the same monthly payment as 20 years at 6.5%.

Other than that make sure all the same protections are built into the mortgage. E.g. no penalty for early pay-off, etc.

Tim Johnson · Answer

I just did one, and I did 10% and with 30% percent down and I think I was giving away my money.  If its to good to be true, it is!!!!!!11

Sam Shueh · Answer

Better than bank rates I suppose 5-6%.  The seller finance often involves a second loan for short term. Honestly if someone wants to sell it he/she is there help you making ends meet. Down payment, first and a second. Why would a seller wants to be the bank lend you 30 years, if they own it for example 15 years?  If the new owner default they got the home again and have it for 40+ years?  Any one who wants to a lender can get 10-12% interest being in 1st or 2nd place on HM lending.

If you think the sellers will finance 100% good luck with that approach.

Ethan Board · Answer

@Jaysen Medhurst Yes I am mean, not requiring flood insurance. I figured not going with a bank the owner financer could waive the flood insurance. (it hasn't flooded in this area in 30-40 years). The city just hasn't remapped/rezoned the flood plain. The current owner owns the duplex out right, so no loan with the bank so he doesn't have to have the flood insurance, which he doesn't have it now. and can't provide me with the elevation certificate.

Also, thanks for the examples of rates and terms. I was definitely figuring higher rates than a bank loan was just kind of wondering about the length of term and also including the early pay-off which you mentioned. Thanks again!

Owner financing, what is a good deal?

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