Owner financing with a note? - Posted by Tom

Posted by Scott SC on May 17, 2000 at 13:30:41:

A lot of questions need to be answered in your case Tom…

  1. Do you own the house outright or are you doing a wrap. If you’re doing a wrap you’ll want to charge an interest rate higher than the one on the current loan.
  2. Do you plan on creating the note then selling it? If you are, first find someone with ‘some’ credit not ‘bad’ credit. Get as much down as possible, preferably 10%, then, depending on the note buyer, you may need to create 2 notes to get to a desirable LTV for the note buyer.
    If you’re not planning on selling the note, why would you create 2 notes? There’s no reason to do that, just get a good down payment and finance the rest on one note.

A little more input from you on your situation and your plans would be helpful. The pros on this site are too old to try and read your mind :slight_smile:

Owner financing with a note? - Posted by Tom

Posted by Tom on May 17, 2000 at 13:15:28:

I have a possible buyer for my home. I want to know how I should structure the note. Should I do an 80% and then a second for 20%? or can I do a note for 95%? Their credit is not good. And what should I charge for interest, 10%? Any input would be appreciated. Thanks.

Re: Owner financing with a note? - Posted by Craig

Posted by Craig on May 18, 2000 at 08:59:35:

If the credit isn’t good the first will probably have to be 80%. It is still a good idea to structure a first and a second even if you are not planning on selling the first right away. You may want to in the future, and some note buyers don’t do partials, splits, etc. Get a minimum of 5% cash down. Try for 10% but I must say good luck trying. Right now it is a really, really, really good idea to make the interest rate above 10%. In cases where the buyer has little down and bad credit it’s a really good idea for the rate to be 12.5% to 14.5%, at least on the 1st that you are selling, you can always give them a 5% rate on the second.

Consider this … - Posted by Michael Morrongiello

Posted by Michael Morrongiello on May 17, 2000 at 21:38:04:

If the credit is weak on these buyers then the starting LTV threshold for the note should be no more than 80% LTV. This along with an interest rate in the 11.5%-12% range on the note will mitigate discounting somewhat in the event you wish to sell the note in the future. Seasoning will also help.

As for the 2nd lien, that lien you will have to hold for income.

Michael Morrongiello