Owner Financing/who Do I Pay?
In a standard owner financing deal who does the buyer pay every month? Is it payed directly to the seller or is it payed through an attorney and then the att. pays the owner? I currently own 5 sfh but have only used conventional financing and am going to look at a duplex with owner financing this week and would like to not look like an idiot.
btw, this site is great!
There are two types of lenders. A bank, and an owner.
The owner is acting as the bank, and you pay them directly, however they may hire a loan servicing company who receives the payments, so just know that usually you will be making payments directly to the owner, who is acting as the bank in the deal
Why do you take owner financing? Don't they charge higher rates? I own 6 properties, all on conventional. This weekend I saw one, the owner is willing to finance with a large down payment. My mortgage brokers suggested me not to take that route. He thinks with my good credit rating, I should get a better rate through conventional. Would the credit bureaus know of the owner-financed loans and would it show up in your loan profile?
Thanks.
Your mortgage broker suggested not to do owner financing, that's a surprise! Owner financing is negotiable, you have to negotiate terms that are acceptable to you.
Asking your mortgage broker if owner financing is a good deal is like asking the fox if you should put a fence around the hen house. Your broker does not get paid if the owner finances the house.
Owner financing usually does not involve points, qualifying, reports to credit bureaus, and the interest rate is more negotiable than a conventional mortgage. Not always, but usually it can be a much better deal.
Thank you very much. I think I can save some expenses on the incidental costs. I was concerned about the report to the credit reporting bureaus because I am working on another bigger deal, which I don't want to jeopardize. If owner financing is off the book, I can get the other one done through a conventional mortgage.
Quote:I was concerned about the report to the credit reporting bureaus because I am working on another bigger deal, which I don't want to jeopardize. If owner financing is off the book, I can get the other one done through a conventional mortgage.ahmedmu,
So, in your mind it is OK to lie on your mortgage application and conceal your private financing obligation because the credit report will not have a record of it?
Still looks like and smells like loan fraud to me.
Newkid,
If the LLC is the mortgagor, and he is not using the same LLC as the mortgagor on the conventional mortgage, then it is not fraud. Although on the conventional it is going to be in his name personally, not an LLC, but the fact is that they are two different entities, and do not have to disclose the other. No fraud here.
bnorton,
1. Nice. Newkid seemed quick to assumptions to me. I wondered: here to share+learn or here to make quick judgements?
2. Advice on books/locations to educate self on LLC pro/cons?
All of my financing has been conventional loans w/down payments. Too much credit is hurting my fico's and time to get more creative. (Fraud avoiding?) Thanks.
Quote:
On 2004-10-01 19:26, bnorton wrote:
Newkid,
If the LLC is the mortgagor, and he is not using the same LLC as the mortgagor on the conventional mortgage, then it is not fraud. Although on the conventional it is going to be in his name personally, not an LLC, but the fact is that they are two different entities, and do not have to disclose the other. No fraud here.
In my own defense, ahmedmu never mentions an LLC.
From his responses, ahmedmu may not have even considered that concealing his private financing obligations on a mortgage application puts him in jeopardy for loan fraud.
bnorton's response, though misdirected to me, is still telling ahmedmu that using a business entity that was not involved in the private financing arrangement may avoid the appearance of loan fraud. I took his response in the spirit of a suggestion which piggybacked on my observation -- which is how I hoped it was intended.
You, ceinvestswhile, do seem a little quick on the judgement trigger. Yes there are some here who do want to learn and there are others who just want to be sharpshooters. I will wait until I see more of your posts before I decide which you will be.
NewKid,
Point taken.
After wandering these pages this w/e I am humbled; I have much more to learn. I like to be clear + have stepped into some gray areas myself. That is why I am here.
As a buy and keep, I really don't know how investors continue to buy.
= My apologies.
Newkid,
You and I may be both going on some of our own assumptions. When someone is investing in Real Estate, and using owner financing, I immediately jump to the assumption that the mortgagor in that instance is a different entity. If it isn't then that raises a completely different set of issues.
It is the LLC that should be involved in the owner financing deal. Doing the other deal using conventional financing will normally have to be done in the individual's personal name first before the asset can be transferred into a land trust or LLC.
You are not just avoiding the appearance of fraud. You are avoiding fraud completely. The conventional lender has recourse against the individual. The owner providing owner financing only has recourse against the LLC if it is structured properly.
My goodness! There is enough playful banter elsewhere in the forum. is it so necessary to do so here as well? Sorry, my 2cents are done
My goodness! There is enough playful banter elsewhere in the forum. is it so necessary to do so here as well? Sorry, my 2cents are done
I am trying to get a loan to remodel my own house, which is already in process. The broker even said I could get twice as much loan done right away, but asked me to wait about a month. I have a LLC for rental properties. I was thinking about owner financing for the LLC. I am explaining it for kind people like bnorton and ceinvests but I can see how the way my name sounds can bring out some strong emotions from someone like newkid.
Ahmed,
It sounds to me like you are on the right track. Obviously, I don't know everything about your situation, but on the surface, your plan sounds both reasonable, and legal.
On the rest of your comment, I would just edit it out. No need to trade barbs.
In answer to your original question - who do I pay - if you are the buyer you pay the seller of the property directly unless it is set up to go through an Escrow company or other financial establishment.
As far as not including this transaction on a mortgage application - I agree with the above statement - it is commiting fraud.
If the seller does his due diligence on selling this property to you he will pull your credit report and that inquiry will be there.
Honesty is always and forever the best policy - in life - in transactions - in looking at yourself in the mirror every morning.
[addsig]
I have a question about owner financing. I am one of those people who may have to opt to owner financing due to credit issues. We have found a house that has been for sale for months. We thought about asking the owner if he would be interested in financing it. What is the "formula" used to figure out what our payment might be? :-? We want to be able to talk to him with some figures to back us up. Any help would be greatly appreciated!
Owner financing can be a life saver.
A proposed payment schedule is difficult to calculate with using a computer program or having amortization tables. (Sold in book form at bookstores for about $10)
Your best bet is to do an internet search of "mortgage rate calculator" and pick one that you like. Then the calculator will ask what the loan amount is, interest rate, and length of term. Plug in all the numbers and you'll have your monthly payments.
One thing I have learned when negotiating with a FSBO is not so much focusing on the price, but understanding how much the seller would like to get paid per month. Are they happy with $500 per month or $2000, or somewhere inbetween? Either way, good luck!
BTW, this site rocks...
Thanks for the response. We tried a mortgage calculator and the monthly payment was outrageous. I know that there is such a thing as a balloon payment where you make a monthly payment that is comfortable for a while and then after a predetermined # of payments, you pay the loan off. How do I figure out, say, a house selling for $145,000 with a down payment of $30,000, and would like payments of $650-$700 with a balloon? At the time the balloon becomes due, do we just get a loan? We are really confused!!!
If you have excel, try the PMT function. You have to enter rate, term and principal (purchase price-down payment). You can play with different combinations of these.
If balloon comes, say, 7 years later, you still calculate monthly payment based on amortization, say 15/20/25/30 years. You will pay interest+principal every month. After 7 years, you will pay the remaining principal balance. Hopefully you will build up some equity by then and should be able to refinance.
You can also do it on a financial calculator. You said you see outrageous numbers. My guess is you are entering something wrong there.
Ok, in my opinion forget the ballons, they are great for birthday parties though.
$115K fixed for 30yrs at 6% = $689.48/mo
Thanks for the quote and the other info! $689 is definately doable. Somehow, I kept coming up with over $1000 per month. If he still owes on the house, would he be able to offer owner financing? I am so glad I found this website- everyone has been very helpful and informative!
Here's the thing... if the seller own's the house outright you're in good shape. Also, if you have $30K for a down payment you're even in better shape because sellers like a good downpayment. Look around if this deal doesn't pan out - $30K is a great incentive to many sellers and you can negotiate a low interest rate with it.
[addsig]
Good advise, John,
$30K down will make a big difference in how the financing gets structured and
opens up a lot of options.
I especially love your quote!
Have a great day!
[addsig]
If you have $30k to put down on a $145k house, I really see little chance that you can't get a loan conventionally.
I don't know your situation but I certainly wouldn't put 30k down on a contract house. Put more like 5% down.
If you are going to put that much down, many states require that land contracts/contract for deed transactions must be foreclosed on if there is a 20% or more down payment. $30k of $145k is 20%.
Your points are taken, but no need to do a contract for deed, and that's not recommended here.
What is recommended is owner financing with a trust deed. Owner acts as the bank, the whole loan application process is ditched. New owner holds title. The loan process can be overwhelming to beginners and those with bad credit, poor income histories, etc... I like owner financing, what can I say?
Money talks! If this is a first time house to live in - the downpayment can make or break the deal. It will definitely get a seller's attention. I do realize that for a seasoned pro, who has good access to OPM, a different course would be taken.
Thanks for the comments on the sig, Smiling.
Thanks for all the info, guys. But heres the hang-up (I think). This home is valued at around $199,000. He owes $145,000. He wants out as quickly as possible due to an impending divorce. We were already approved for a conventional loan but our payments will be around $1200. Our credit is considered bad (around 540) so that with a conventional our interest rate is around 10%. Since the current homeowner still owes $145,000 would it be possible for him to finance this mortgage just long enough for us to rebuild our credit so that we can refinance later?