Seller Strategy For Assumable Or "Sub-to"?
I sure appreciate all of the great posts on this site. Here's my situation:
I am attempting to sell a home on a lease-option. However, I received a phone call today from someone who wants to see if I could seller-finance. Market value for the home is ~$380k. I have a 1st of $255k and a HELOC for $40k. The rate on my 1st is 4.75% fixed.
The buyer doesn't have much in the way of reported income. But he has $25k in cash and said he could pull out another $100k in equity from a duplex he currently owns. He's interested in the property but his income numbers would never let him qualify for the loan size.
Obviously if my loan was assumable this would be the perfect answer since its got a great rate. I know that a sub-to would be an option, but I'd prefer to not be listed on the loan.
What about a seller finance? Can I transfer title AFTER the last payment has been made to me? Or do I need to transfer title up front?
If you can get $125,000 cash I would do what ever they want. Seller financing involves giving the buyer a warranty deed with a vendors lien and him giving you a note and deed of trust. I would pay off the second and owner finance at 8 or 9 % and make a spread on the first mortgage. Take the cash and buy some rentals or a rehab deal
Happy Holidays and Thank you,
Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737
512-301-9171 home
512-587-6177 mobile
Take the $125,000 and pray that he can't afford the financing... ok thats bad. But maybe he couldnt qualify for a $380k loan but w/ $125k down could he qualify for a $255k loan? I'm guessing not, but I would just owner finance. Besides you'd probably get more cash up front anyway since w/ sub-2 he would only give you the difference between your loan and the selling price(less than $125k). Owner finance with a higher interest and take your money and invest.
Oh and I'm nearly positive you can wait until the last payment to give them the deed.
Thanks for your good information. I spoke with a local title company and will be able to do a wrap deed of trust.
One other question, how about insurance? I saw this article by norrist on homeowner's insurance, http://www.thecreativeinvestor.com/Article472.html&mode=&order=0&thold=0
However, this seemed to be protecting the interests of the buyer mostly. How about for a seller, is it adequate for the seller to be listed as the additional insured only? Or is it possible to keep the current policy in place?
I thought Lease options were in a sense, seller financing, at least for a while. If they can't show income, or be in a position to get financing within a couple of years, I'd be wary, however with the amount of cash that he claims to be able to come up with, that could soften me up a bit. I think that a wrap or contract for deed would protect you well enough. You retain ownership until the contract is fulfilled, and if they don't pay, you can make them go away. even if it takes a while, they've already paid you a big hunk of cash.
With regards to insurance, you as a lien holder can require your buyer to list you as additiionally insured on their policy. I'd include the premiums in their payments.
Good Luck,
Jeff[ Edited by jeff12002 on Date 12/29/2003 ]
Quote:One other question, how about insurance? How about for a seller, is it adequate for the seller to be listed as the additional insured only? Or is it possible to keep the current policy in place?halesmob,
If you are selling on a wrap-around mortgage, then you are a lienholder. You would be listed on the buyer's homeowners insurance as a second Mortgagee Loss Payee (better than being an additional insured).
DaveT, thanks for the reply. What if I have a HELOC in place as well. They are already the second loss payee. Can I be the third loss payee? In fact, that brings up another question: can you do a wrap mortgage and keep a second mortgage current as well? I spoke to a CPA and he seemed to think so.
This guy is ready to buy, I'm going to try to get an RE attorney to write up the contract tomorrow!
In your case, a wrap around, contract for deed, seller finance, what ever you want to call it, this is what you would call a win-win. You can set your interest as a seller finance because he can't go to the bank. You hav $125,000 up front and you can state in your contract that the deed is transferred upon final payment.
Insurance? As long as you are on the deed, you and the bank will get the benefits. You can state in your contract that any amount above the amount owed the bank and you would go to the buyer or something to that effect, if something were to happen the the property.