owner financing - RV-Dreams Community Forum

DebWA · RV-Dreams Community Member

owner financing

heyjohnm · RV-Dreams Family Member

In a perfect world some happy buyer gets your lovely home, you get an attractive down payment , every single payment is never late, and you are forever free of hassles in this long-term financial relationship.

Unfortunately, the downside of owner financing (or any mortgage financing for that matter) is that life happens for the buyer as well as the seller. The buyer gets laid off, gets lazy, loses job, gets injured, gets divorced, dies, builds a meth lab in the basement, goes postal, or forgets to pay taxes. If you hold the mortgage, you are at risk under every one of these (and other) scenarios. As the mortgage holder, your circumstance may change as well and you may need the money early, which means you would probably have to discount the mortgage to get it sold (and the value tanks if you are holding a non-performing note) . Sorry for the negative perspective but I see the aftermath of bad things happening to good people every day in this market as a Real Estate Appraiser.

Hope I have given you some points to ponder and I wish you the very best.

JohnM

Luvglass · RV-Dreams Family Member

I would think you should do the same checks a bank would do before lending to a borrower. I also would suggest having a real estate attorney draw up a contract that protects your asset in the case that the buyer defaults.

What is the advantage of this arrangement to you?

-- Edited by Luvglass on Thursday 19th of November 2009 06:21:48 AM

Racerguy · RV-Dreams Family Member

We also have our property paid for( part of our debt free plan) and for sale at this time. Unfortunately the market in our area has tanked due to massive foreclosures. We have had several offers of rent to own or owner carry. We will NOT do this for this reason. In general those who want to go this route have been turned down for normal financing. BIG RED FLAG TO US. Just my opinion but for us, the risk is to high. I guess it depends how much risk you want to take. As John says the risks are numerous.We have decided to travel as much as possible until we get a reasonable,fully financed deal. Of course there are always exceptions to every situation. Good luck which ever way you decide to go and welcome to the forum.

thebearII · RV-Dreams Family Member

My dad carried the contract on a house he sold. Everything was fine for the first couple of years and then the couple divorced, the woman couldn't make the payments and he had to take the house back. In the mean time the housing market had died and he ended up taking a loss on the property just to get rid of it.

Terry and Jo · RV-Dreams Family Member

First of all, I would suggest that every option be taken in confirming the credit history of your potential buyer. Unfortunately, I'm not sure that you as an individual have the right to see the credit reports of your potential buyer. If they would be willing to request credit reports from all three major credit bureaus and provide that report to you, you would have an opportunity to see the report.

I would be against the idea for another reason. Years ago, Jo and I had a home in a small town. As the manager for a country grain elevator, I was provided a home by the company for which I worked. Thus, we rented out our home in town to a co-worker and then later to the local school's custodian. In both cases, we found that the renters cared little about the home and its upkeep.

The co-worker failed to tell me about a defective door knob and continued to close the door by pulling on the door ringer. Eventually, that broke as well. So instead of a $10 fix (for the doorknob), I had to replace the door (and frame) because there were no door ringers to replace the one that broke. To not replace the door would have left a door with a hole in it where the ringer used to be.

The custodian that rented from us took off the storm door and sold it to someone else. Needless to say, he didn't pay us for that door. We even made arrangements with him to do minor repairs to the house and we would allow for those repairs in his rental payments.

Even with a mortgage company involved, some "home buyers" just up and leave if they find it beneficial to them at the moment. So many have no concern about what it will do to their credit rating.

With the experiences that we have had, I'm not even sure that I would "carry the loan" for one of my children.

Sorry to add to the negative posts, but I have to be honest about what can happen.

Terry

DebWA · RV-Dreams Community Member

Hi,
Thanks for all the responses. We don't have our home up for sale and don't know if that's in the near future. I asked the question because of some conversations I've had with people in real estate recently and from reading numerous forums with people trying to sell and wondered about the feasibility of owner financing.
Recently a friend and I were at a festival and ran into a real estate agent my friend has known for years. She mentioned that the market was down and even when people go through the selling process, get a contract, inspections, etc. that when it gets to the bank appraisal, it all falls apart. After the shenanigans of the last few years, the banks are going the other direction and turning down a ton of loans that would have gone through even before the mess started. She figured at least another 2 years to have things settle down.
A week ago we had dinner with good friends who have been investors in real estate, homes and commercial, and we were talking about that conversation. I wondered out loud what would happen if we ever sold ( we are retired) with the market in flux. He listened and then told me if he were in our shoes he would carry the contract. I said "What????!!!!" He said he's carried the contract on both homes and commercial and loved being the "bank". He got up to 30% down, a higher interest rate, and then in some cases asked for a balloon payment after X number of years. Credit check, etc. He did explain the drawbacks, too.
Since then I thought of how many people I've read about trying to go full timing and selling the house and wondered if this could be an option.
I've also mentioned this to other friends and some told how they bought their first home on owner contract - one said they had to put 30% down, or how their parents carried contracts on homes- all successfully.
So I have heard both sides and just put it out there for another line of thought for those who are trying to sell to let them think of all options.
Thanks again for the responses. I hope others add their input!