Being The Bank
I was wondering if any investors have simply used owner financing when selling a property and how that worked for them. Is the process as simple as checking out the buyers and then having them sign a promisary note? Is the only colateral the house they are buying?? Any info. would help this newbie. Thank you
Murta-
I have held a first position. You can get a lawyer - but a good title company can handle it for you as well. I advise a full credit check ( on their dime) as well as a cxomplete note and mortage.
Good luck.
Gregg.
[addsig]
Absolutely make sure you get their credit score.
Credit Score:
>620 You will get paid (They probally don't need you)
600-620 You will get paid late.
570-600 You may or may not get paid.
<570 You want get paid.
Anytime you put someone in a house that you haven't sold outright, you are "being the bank." That holds true whether you're renting, leasing, lease-optioning or some sort of owner financing.
Using pspiers's guidelines, practically no one without decent credit would ever live anywhere. While their credit should be considered, the score is not really that important. A credit report will show how they pay their bills, and more importantly, why their credit is not perfect. The most important consideration when thinking about owner financing is how much will they put down? Someone willing to put 10% or better down is not as likely to decide to not pay you. The less down, the greater chance of not getting paid.
There are many different forms of owner financing, and a lot will depend on your on loans against the property. I'd suggest you read up on some various options on financing.
Roger
rajwarrior,
I agree that the credit report may give you a reason that a persons credit score is low and that that reason is justified. Therefore, a person may be a better credit risk then the score indicates.
However, I strongly disagree with your statement that the credit score is not that important. Numbers don't lie! Credit scores are a strong predictor of timely payments and foreclosers.
Anybody who offers finacing (or rent/lease) should establish their on guidelines in terms of minimum credit scores and downpayments.
Well, let me give you a few reasons why the score is not that important.
You've got a house for sell for $100K. A buyer comes along and offers you $10K, if you owner finance. You pull his credit, and his is is about 550. You look and he paid on time on everything except for a year or so, then on time again. By your criteria, you wouldn't touch him, right, because of one bad year, even though you've got $10K in hand and a monthly payment of $750-800/month incoming.
Same situation, different buyer. Has a 600+ score, but when you look, he has been late on many things, has several credit cards, and maybe a repo (the score is possible even with all that. I've seen it). Offers you $2K down.
Which would you choose.
Real life example: Couple wanted to buy a house from me, owner financing. I sent them to my mortgage broker for a standard credit check and "how long to refinance" question. They had a 591 credit score, and a BK a little over a year old. Came back from the broker with a 100% financing. Why? because except for that little hiccup in their credit history, everything else was good.
Roger
Roger,I agree totally with you. I just closed on a house with a couple (he is a head high school football coach and she is a nurse). They had a 3 y.o. bankruptsy due to trying to keep one of their children alive. Their daughter was hit by a drunk driver (uninsured) waiting for a school bus to go to school. After their insurance benefits and all other resources had been exausted they had to bankrupt on $12,000,000.00 in doctor and hospital bills. Their credit score came back at 610 and they have a $50,000.00 down payment on a $200,000.00 house. Their combined income is over $100,000.00. Second person who wanted the house has a 800 credit score makes $150,000.00/yr.,married,2 children,and spouse does not work. But has $200,000.00 in consumer credit. Also $0.00 for down payment. Who would you choose?
There are exceptions to every rule. Of course you should take a large down payment over no down payment in most cases.
However,I promise you that your foreclosure rate will be directly corelated to the minimum credit score you choose to except.
Also, if you seek to sell your paper, those investors are going to have minimum credit score requirements. Your financing deals need to reflect the requirements of the secondary markets. If not, you lose liquidity.[ Edited by pspiers on Date 03/09/2004 ]