I would love to owner finance my house. Advice on terms please!

5 Replies

Hi Investors,

I own a house, and would love to get some guidance on what to do with it. I am trying to cut my expenses down to buy & flip properties.

My initial thoughts were to rent it out, but an investor friend recommended the owner financing option. Has anyone ever done this ? Is it better than renting?

Any advice would be highly appreciated!

I usually ask for 10% down at 6% with a 3yr balloon to someone that's only a year or 2 from qualifying.   I screen like I would a regular tenant but with a higher credit score requirement.

I've had to take a couple back and wished I'd just rented them out.  My screening criteria is better now.  

A 3rd option may be a lease with the option to buy.  Theyll take care of the nuisance landlord headaches, but you'll still own it (a good thing) and be on the hook for major repairs like roof and HVAC (a bad thing).  I usually ask 3% as option consideration and give them up to 2 yrs to buy.

I usually ask for $10K-$20K as down payment although 10% to 20% is also a good guideline depending on the price of the house.  I also generally price the house slightly above the market price as seller financing buyers tend to care more about terms (monthly payments, interest rates, down payment) than the actual sales price.

For interest rate, I would consider something a few points over the market interest rate for a residential mortgage.  With today's rates, I would say between 7%-8%.

In terms of length of the loan term, it really just depends.  Do you want your cash out soon or do you want to maximize your income.   If you want your cash out, than I agree with Steve, go with a 3-5yr balloon.   If you think the buyer might not refinance anytime soon and you want to maximize your return, you can go with longer terms.   We have a few we have done with 30yr terms.

In terms of Owner Financing vs. Renting there are different pros and cons

- If you are the landlord (renting) you have to deal with repairs, vacancies, tenant issues, etc...   However, if your home is in a high appreciation neighborhood, you get to retain the appreciation.

- If you go with owner financing, you become the bank so you get paid every month but repairs, property taxes, etc... are no longer your problem.

You know your personal financial situation as well as the condition of the home as well as rents in the neighborhood so you will have to decide which model is best for your situation.

Good luck!

A balloon too soon will scare off many buyers . Why not collect that good interest for a longer time frame ? I would think Your balloon ought to be atleast 5 years . Add 1-2% to what banks charge for interest . Get atleast 10% down preferably 20 % and be sure it’s worded that the down payment is non refundable.