Investor · Spokane, WA · Member since 2012 · 71 posts · 24 votes
If I own a house that I owe an existing mortgage on, can I turn around and sell it owner financed?
For example with some made up numbers, let's say I owned a 100k house, and I owed 60k on it at 3.5%. Could I turn around and sell it at 100k, at 8% interest, owner financed, with a 10k down payment?
What kinds of pitfalls would I need to worry about in such a scenario? And what would the process be? I assume I would start with a real estate lawyer to draft it.
Thanks much! I'm trying to decide between this or lease-to-own options, but I want to make sure this is even feasible.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
Yes, you could. That would be a "wrap mortgage". You're creating a new mortgage that wraps the existing one. It does violate the due-on-sale clause in your existing mortgage, though. If your buyer stops paying, you have to foreclose to get the property back. In the meantime, you would want to continue to pay your existing mortgage.
The SAFE act may come into play, too.
Also, if you sell with a lease option, that violates the due-on-sale, too.
Real Estate Investor · Las Vegas, NV · Member since 2011 · 117 posts · 28 votes
14y
I've purchased a few seller financing deals and I've done one in which, like Jon said, wraps the owner financing around the mortgage. Go through an escrow company to close and they can do all that for you. I would also highly suggest you set up the payments through a third party loan servicing company so you know when the buyer stops paying.
I would recommend this method over lease to own. You could get into a lot of problems say 5 years down the road the buyer could not get financing and then wants his or her deposit back.