Owner Financing Question from big time newcomer - Posted by Carr

Posted by dave(wa) on March 08, 2007 at 11:49:38:

If it comps for $700K and is not selling at $669 I would seriously look at the validity of the Comp and what is the true value

Owner Financing Question from big time newcomer - Posted by Carr

Posted by Carr on March 07, 2007 at 18:42:41:

Property originally was $730K. It did not sell. Owner lowered price to $669. Still is not selling (i think been in market for close to 1 year now). Seller’s loan amount is $580,000 and she is paying monthly mortgage at about $2700 or about $3,330 (PITI). Believe title is free and clean. Realtor she is dealing with is not good - since it has not sold yet – so she needs someone creative like me :slight_smile: This is where I come in – but not sure how. I have heard about (1) owner financing and (2) Buying property"subject to", so please continue reading and tell me if I am making sense. Pls feel free to give comments, suggestions on how to structure the deal.

Property is in a very nice neighborhood, 2 stories – First floor is 1 bed and 1 bath with living room, kitchen, dining and a little patio. Downstairs is legal 1 bedroom and they added another room and bathroom (without permits). One car garage. Property is SFH, owner occupied.

Scenario 1 (Owner Financing)
Ask Seller to sell it via owner financing for $650,000 at 8% for 30 years, no pre-payment penalty. Monthly Mortgage and Tax payment of buyer would be $4,806.16 per month. $4806.16 - $3300 (Sellers’ current monthly PITI) yields $1526 extra per month for Seller. I can convince Seller to do it this way because with owner financing, there will be more buyers attracted because buyer does not have to go thru bank or loan, no closing costs, no credit checks, no commissions, etc. (I will advertise property for sale in craigslist, send out flyers, advertise in SF newspaper, etc. etc.) Seller’s advantage is that her monthly mortgage is paid off and she gets extra money per month.

Now since the loan is still in Seller’s name, and she continues to pay PITI $3300 per month, but the buyer is also paying her monthly mortgage of $4806.16 (based on $650,000 Seller owner-financed) —

  1. who gets tax benefits?? is it Seller since loan is in her name? what about buyer – what is her benefit?? Will she only get her tax benefits when and if she re-finances? How soon can she refinance? is there any seasoning? Can she refinance with only a deed in her name (see question #2) or does she need another document in order to re-finance?

  2. What documents should Seller give to the buyer ? just the Deed?? Should Seller’s name in deed be removed and replaced with Buyer’s name or should Buyer’s name be added to Deed? Which is a safer way? Who holds the title to the property? if it is still the Seller, you think a buyer would accept this?? When will the title of property transfer to Buyer’s name.

  3. Who pays for the fees (if any involved)??

  4. What other things did I miss out in this owner-financing deal?? are there any special forms and agreements??

  5. What other option is there??? what about “subject to” – but I am not so familiar with how this works – can you please enlighten and provide details.

Re: Owner Financing Question from newcomer - Posted by Mik

Posted by Mik on April 06, 2007 at 13:35:21:

Pretty much sounds like a lease option deal.

Due on sale clauses need to be considered, although it’s not likely a lender would pursue that clause if payments were being made in a timely manner.

Additionally, seller would need to have specific protections written in, just in case your buyer decides to stop paying, but remains in occupancy.

A Clause that says something like “Buyer agrees to revert to a tenant, in compliance with all such tenancy laws of the State of CA , should any breach of this contract occur.
If breach of contract results in buyer reverting to tenant, then tenant agrees to immediately vacate said premises and/or agrees to pay all legal and attorneys fees, resulting from an eviction process.”

Uh - something like that - although a Real Estate Attorney would have a better handle on those clauses.

Anyway, I’d also ensure that the buyer has enough money, in the deal, to make it hurt - should they breach.

Re: Owner Financing Question from newcomer - Posted by Max-Va

Posted by Max-Va on March 07, 2007 at 21:35:26:

You reall should study more
There are flaws all though this.
Scenario 1 What seller would sell to someone owner finance and not do a credit check
1)She get tax benefits on the interest she pays to bank and buyer gets tax break on interest they pay seller
Seek a good real estate attorney to work this all out

Re: Owner Financing Question from newcomer - Posted by Carr

Posted by Carr on March 07, 2007 at 23:32:19:

I thank you for your comments. Sorry, of course credit checks will be done – what I really meant was that credit scores will not be such a big factor so that even those with low fico scores who cannot get mortgages can qualify. I will seek a real estate attorney too.

However, is this doable based on what everyone says about owner financing – am I covering all bases?? Pls advise.

Re: Owner Financing Question from newcomer - Posted by Max-Va

Posted by Max-Va on March 08, 2007 at 07:29:05:

I have done several owner finance deals, where I am the seller. I get a credit report and score. I maintain that the buyer must have a credit profile good enough any bank would accept. When I carry the paper it is extra profit for me and save the buyer severl K in closing costs.
Yes it is doable

Re: Owner Financing Question from newcomer - Posted by Carr

Posted by Carr on March 08, 2007 at 11:07:47:

Assuming I found buyers with good credit profile, pls let me know what you think.

1)Seller finance property for $650,000 (remaining loan balance is about $580K). Property comps is about $700K
2)terms: 8% for 30 years, no pre-pay penalty, can be refinanced in one year or two years.
3) Seller gets tax break from interest she pays to bank
4) Buyer gets tax break from interest she pays to seller


  1. Am I correct to assume that existing lender (Bank)will not be informed that someone else will be paying the current mortgage (from the 580K)? and this will not pose a problem??
  2. Seller needs to prepare a separate ageement between him and Buyer about the payment arrangements and terms – is there a special form for this I can buy?
  3. Does seller give buyer the Deed or will a new Deed of Sale be made or will Buyer’s name just be added to existing Deed? Who do I contact to do these changes??
  4. Does title of property still stay with seller?
  5. When can buyer refinance property (so that Seller’s original loan can be paid in full)?
    6)How long is the seasoning period, if any? (property is in CA)
    7)What document must buyer hold so that he can refinance?
    8)What other things should I consider that I may not have covered??

I am entirely new to this so your help and advice really means a lot. The seller is anxious to get rid of the property and I think that this is going to be my first deal, if I do it right.