OfflineOwner financing, occurs when the seller of a home finances all or a portion the sale of his or her own property. This is often referred to in real estate ads as "Owner Will Carry" or similar wording, meaning that the owner of the property will, in effect, act as a bank and loan the purchaser all or part of the money needed to purchase the owner's property.
There can be several advantages to the seller for carrying a note, as it is also known. There can be tax advantages in spreading out the time over which an owner receives the money from the sale of a property. Also, many owners simply like the idea that they can receive a monthly income from a property even after they have sold it - and no longer have to worry about repairing leaky roofs or replacing dead water heaters.
There is a nice monetary inducement to the owner to carry paper as well - the owner can charge the buyer interest on the money that the owner is lending to the buyer. In this way not only does the owner collect a monthly mortgage payment on the property he or she has sold, but the owner collects interest as well, in effect increasing the owner's overall sales price of the property.
In order to protect themselves, some homeowners require that the buyer make their monthly payments into an escrow account held by a bank or other lending institution, and they require the borrower to place a Quit Claim Deed into the escrow account with instructions that if a payment is late by a certain number of days then the escrow officer will automatically file the Quit Claim Deed, restoring the house to the former owner instantly.
If this were to happen the buyer would not only lose title to the property but would also lose any and all payments already made on the property. This is a powerful incentive for the buyer to make all payments in a timely manner.
A more pragmatic reason, perhaps, why some homeowners agree to carry a note is to increase the universe of potential purchasers for their property. The way this works is easy to understand. If the homeowner is making a portion of the loan on the property then the borrower will need to qualify for a smaller loan from a bank or other financial institution, meaning that a larger number of people will be able to qualify for any bank loan that might be required to purchase the property. If the seller finances the entire selling price of the property then buyers do not need to qualify for a bank or other financial institution loan at all. This can greatly increase the number of people who are interested in buying a piece of property.
For starters if the owner is financing all of a sale then a borrower does not have to qualify for a loan at a traditional financial institution. Even if the seller only finances a portion of the loan the borrower benefits by having to qualify for a smaller loan from a traditional mortgage source.
Additionally, when a seller finances a property there are no points or closing costs for the buyer to pay, saving the buyer potentially several thousand dollars on the transaction. And while the seller of the property may charge the same interest rate that a bank or other financial institution would charge, it is sometimes possible for a buyer to actually end up paying a slightly lower interest rate if the seller finances the sale since more aspects of the sale are open to negotiation than may be possible when dealing with a traditional lender.
Many factors can influence whether the seller of a property is willing to carry all or a portion of the sales price on a piece of property. In many cases, however, the determining factor is the overall condition of the market itself.
When homes become difficult to sell - when it is a buyer's market, in other words - then sellers are more inclined to do whatever is necessary to increase their chances of a sales and so owner financing is more readily available.
Conversely, when homes are selling quickly and it is a seller's market, then sellers have little incentive to carry back a mortgage.
So your chances of finding an owner willing to carry back a mortgage are largely dependent on the current housing market. But regardless of prevailing market conditions, it never hurts to ask if an owner is willing to carry paper.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Hi Anita
cindy REI
I getcha, right on, i'll do the math you definately got your p's and q's togetha. Owner finance at 8%. verdict is lease purchase or owner finance?????????
cindy REI
No, in all reality i would much rather do a flat sale ,if not a complete sale, then owner financing or a lease purchase, sorry we all got our wires croXXXXXXXXXXed. Lets bring this to a new beginning or bring it to a head. Maybe we need to bring in a coach or 2.
cindy REI
I was leaning more towards an owner finance deal to help someone that is unable to qualify through a bank. where i would ask the seller for 5 % down on my asking price of 235,000 that is the comps in my area, but i was told to mark it up higher if i was going to do an owner finance deal. At least 10,000 or more.Price will go from 235,000 to 245,000. not sure of the mark up if it is wise to do or not. Anyway This is what the down pymt would be if i continue to ask 235,000 = 11,750.00 and then as for there purchase credit for every month, that still has to be worked out for them and for me to be able to make an xtra 200.00 that goes in my pocket. never done this before. what do most of you all do on an owner finance deal as far as the mark up and how do you apply the purchase/rent credit or whatever term is used. I would like to give them just a 1 yr term for them to find financing. I would much rather sell my home straight out but we all know the mkt is down and now is the time for owner finance deals and lease purchses. Could this be a question for the coaches? NAAAHHH you guys can do it.
cindy REI
Cindy,
You want to capitalize on the estimated FMV when your leasee would exercise the option to purchase. In your case you stated a year, check your trending and see what the nominal increase in property value increases by. Also, whatever agreements you state in the contract such as: they can renovate as long as it's approved by you, how much of the "rent" you put towards the final purchase price, etc play factor in the overall purchase. You don't want to agree on a exercised final purchase price using the current market value because in reality, most of the time, you'd get more for your house in a year from now.
make sense?
sorry i made your pumpkin thump. Mine probably will before the days is over. LOL
cindy REI
OH I didn't know i could mix both, that is very helpful. More less whatever i would want to do with my own terms. Okay thanks alot.
cindy REI
I am asking 5% down of 235,000 or 245,000 not sure of price yet.
cindy REI
Boy i sure hope we don't get a skull ache again today. I would use the term skull ache cause yesterday i seriously did have a skull ache LOL
cindy REI
Yeah, mine did too. Daughters' dramas don't help, but today's a new day! Two more days and I'm heading back home, I don't know if I'm sad or relieved.... LOL!
Elena
Psalms 118:23 "This is the LORD's doing; it is marvelous in our eyes."
Hello! We bought the book, found a house, now we just need to present an offer. But I still have a few questions. My husband and I are self-employed with no real track record yet to present to a bank...yet - so getting our own financing is, I'm told, not the way to go...
So we're going to try for owner financing. What is the difference between a Promissory Note and a Real Estate Contract? The sellers are divorcing and are pretty much selling it for the balance of their 1st and 2nd mortgage. If we went any lower, we'd have to short-sell it, and I'm not ready to get into that yet. It's a good price as it is. If we did a Real Estate Contract (or Promissory Note) for their balance, where would the 6% come from for their realtor? If we just go through an Escrow/Title company, will that cut down on closing costs as well?
Thanks for your help !!
well first of all what is their situation. Is it a straight sale orpending foreclosure.
If they are behind and wanting to sale then you may consider a wrap around mortgage with them but you would have to have them quit claim it over to you, pay the past due and arrange to make the payments through an escrow company directly to their lender - but the loan stays in their name and anything over the existing mortgage payments and fees from escrow holding would go to owners. hope that helps
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
no realtors @ all, is their? you wouldn't be able to do a SHORT SALE anyway, because all banks require SHORT SALES to be cash sales, and from your post, sounds like thats not possible. As for PROMISSORY NOTE vs REAL ESTATE FORM, i would use a PROMISSORY NOTE with the sellers, i think that would be easier to disclose the terms like, how many years, @ what rate%,etc., SULLY.
YOUR HERO, SULLY
Hi everyone. I'm brand new to this. I thought I already posted this, but I can't find it anywhere... So let me try again:
My husband and I bought the book, read the book, found a house to buy, and are ready to present an offer. The sellers are divorcing and appear to be selling it for the balance of their 1st and 2nd mortgages. We are self-employed and without any track record yet to present to a bank in order to get financing. At least we've been told that the interest rate would be so high that it wouldn't be worth it. So we are hoping to do owner financing.
My question is: What is the difference between a Real Estate Contract and a Promissory note? Is it the same thing? If we were to do a Real Estate Contract (or Promissory note) for their mortgage balance, where would the 6% come from for their realtor? I'm not sure I'm clear on that. We wondered about a short-sale (?), but I'm not ready to get into that yet. The price is plenty low as it is.
Thanks for your help and any advice!
Okay I found it. Sorry for the double posting....
Thanks for your replies.
I don't think the sellers are behind, yet. They do have a realtor, we don't. Someone said we should ask for 1% of the realtor fees back at closing to help with closing costs (since he could get the whole 6%) But where is that 6% going to come from anyway if they are only asking the balance of the mortgage (no equity)?
about that, who really cares, right?, the reason for that is because the agent would be getting the FULL commission, because you have NO realtor, which is probably better that way, anyway, don't get caught up in worrying about the realtors commission, they get paid, o.k., worry about you, and how your going to get PAID
, oh, and ask for that 1% back @ closing too, YOUR HERO, SULLY.
YOUR HERO, SULLY
all banks require SHORT SALES to be cash sales??????
sure about that? I put in an offer on a short sale and it was not a cash offer...
Don't Wish the Past, Create the Future! - DH
SELLER owns OUT RIGHT.
Does this work to BUYERS advantage?
Thanks,
SoCal
No they don't, but you must have (proof of funds) with your offer, whether it's cash or qualifying for a loan.
Psalms 118:23 "This is the LORD's doing; it is marvelous in our eyes."
to the lender it MUST be a cash sale, so in other words, you can get approved from a lender for $150,000 for a property thats a SHORT SALE, as long as it is in check form they don't care how or what you went through to get it, but yes ALL SHORT SALES are considered cash sales, SULLY.
YOUR HERO, SULLY
Don't Wish the Past, Create the Future! - DH
thats ahhhhhhhhh yeah.
Don't Wish the Past, Create the Future! - DH
It just goes to show how much clarification is needed. For the newbies please read it and take good notes.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Just wanted to know if someone can break down the owner
finance. I am looking at a property selling for $429
the owner needs $200k cash and will carry the $229k @ 6%.
He told me that the payment would be $1200 a month to him.
Am just wondering how to figure these types of deals. Am new and not sure how to work the #'s. I have a good job and good credit so the $200k would be no problem to get from a bank. Am just trying to figure out how to work the # on the owners finance on this type of deal. Thanks in advance.
"God gives us gifts, warped up in problems"
look to your other post for some answers. Rina and myself left you comments but check out this link for how to calculate your offer http://www.deangraziosi.com/node/3975
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
You can do one of two ways of owner financing. You will fill out a contract signed by you and the owner with the terms. Both parties have a copy or have a Real Estate attorney file it. You pay the property owner the payments with interest. Once the property is paid for, you get the title.
Or... you can do a Contract for Deed. This is a little more strict. You have the contract recorded at the courthouse and you also have a trustee (third party) set up to post your payments to the mortgage. Keeps everything on the straight and narrow.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
seller financing can be a great way to buy a property where you only have to finance the difference between what the owner will carry back and the purchase price. A good way to buy a home if you can't qualify for full purchase price.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
about OWNER FINANCE is: It has absolutley NO effect on your CREDIT, your DEBT to INCOME RATIO will stay the same, in other words, your DEBIT to INCOME will NOT go up.
YOUR HERO, SULLY
finding 100 % seller financing is a wonderful way to buy with little or no money to purchase the property.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
Okay This is all really great information. How does one set up a L/O or Rent to Own on our end and sub lease it as a rental property?
Erika, REI
Brownstone Investment Group
405.748.0734
www.facebook.com/Erika.Coleman
www.twitter.com/brownstoneREIgr
Job 22:21 Submit to God, and you will have peace; then things will go well for you.
Job 22:28 You will succeed in whatever you choose to do, and light will shine on the road ahead of you.
Deut 28:8 The Lord will guarantee a blessing on everything yo do and will fill your storehouses with grain. The Lord you God will bless you in the land he is giving you.