I have a family who wants a no interest loan.
I explained I could amortize the loan but give them a payment. I ,like a bank, loan is amortized. due to their culture n beliefs they can't pay interest.
I require 20% down to owner finance. The property price is $190k this year ( they r going to do a rent to own until they can reach the 20% down).
They said they wanted pay off for 10 years.
I will not go the route of principle only.
Just trying to find a way to make it work for all parties.
Raise the price to whatever point you need to cover the required interest.
You could do a few things:
Make them pay hefty points up front, charge more for the home, charge a monthly/annual loan servicing fee.
Also, there are some services out there that offer products similar to this with risk sharing, also many cities have Habitat 4 Humanity (or similar) when they work with a family, their terms are no-interest (In all of the localities that I have worked with them, at least). I know that doesn't exactly help you, but it could help the buyer if you can work something out between the two of you. H4H does normally have income limits though, so they may not qualify for the program.
If they can’t pay interest due to religious beliefs, are they ok paying a “loan management fee” or whatever you want to call it besides interest?
A 190k sale price with 20% down is a loan on 152k. At 7% interest, and 360 months amortization your payment will be $1011.26. To back into the loan amount at the same payment, but at 0% interest, you end up with a loan amount of $364,053.6, so a sale price of $455,067. That might not be an easy sell.
They may also believe they can't pay taxes, but we don't live in a world where that works. Borrowing money costs money, whether you believe it should or not. If they believe they cannot pay interest, they mean to say they believe they cannot borrow money, because that CAUSES interest, so they have to avoid the cause (borrowing), or get over it and pay what we all have to pay.
Just my opinion.
@Johnna Lodge It doesn't look as bad on a 10 year amortization schedule vs @Chris Baber 30 year. $152000 at 7% 10 year = $1974. Total payments would be $236861/120 =$1974. Total property price $274861. It would take 43 months before it would be lower than the $152000 mortgage conventional. I don't know what would happen if they sold before that time.
Thank you all.
I would have to charge them a lot of points to cover amortization.
Yes they may not like a sales price of $274,861 in 10 years but they do not have the 20% to put down today..I just have to lay it on the table for them and they have to decide. This may not work for them. I don't feel comfortable doing any other way for me.
I explained to them the shorter the period the higher the monthly payment. I think close to $2K in monthly payment would not be reasonable for them and they wouldn't like a purchase price of $274,861.
I was trying to see how to make it work for all.
152,000 @ 7% for 120 months = 1764.85/month
1764.85/month @ 0% for 120 months = 211,782 loan amount, 264,727.50 sale price
better than 30 year, but not great either.
Best they understand how money works and interest is a part of life if you borrow money, and just deal with it.
Get a mortgage loan originator involved ASAP if it is owner occupied.
1. There are strict rules what you can and cannot due.
2. Someone beliefs about not paying interest - that’s a first and that would lend me to believe these people will be trouble
So do everything by the book
@Chris Seveney in regards to your comment #2, many who follow the Islamic faith believe that paying interest is against their religion, so I would be careful making a blanket characterization of "that would lend me to believe these people will be trouble." Here's some quick reading from Wikipedia on the subject or you can just google it.
I was not aware of that.
My post was not meant to be negative towards anyone’s faith or religious beliefs.
i would have no dealings with people who dont pay interest . That’s a bad business practice . You can’t find somebody else to buy the house ???. These Same folks think nothing of student loan debt to go to our colleges or getting business loans . All these have interest so it’s hypocritical. Run don’t walk from such people