What interest to Charge on Owner Finance - Posted by Jed Clampett

Posted by Nate-WI on October 26, 2005 at 21:19:25:

Make your note as strong as possible. The note buyers I deal with like what a normal lender would like…strong credit, good DTI, good downpayment, LTV, and a note that usually is at a 30yr am with interest rates in the 8-10 range for SFR’s and 10-12% for commercial notes. The stronger the note the better.


What interest to Charge on Owner Finance - Posted by Jed Clampett

Posted by Jed Clampett on October 26, 2005 at 13:24:37:

Here’s the deal. I am willing to offer owner financing on a home I own that has a market value of $375,000. My debt on the house is $220,000 and monthly payments are just about $1500 including interest & taxes, less insurance.

If for example, a guy comes to me with 25K as a down, then a $350K mortgage payment at 6% is roughly $2100. Pays off the underlying debt, and I have my house sold with some monthly income.

What is a sensible interest rate to charge on owner financing? What options are there for financing this business?

What makes this note attractive to a note buyer later on? Higher interest? More equity on the home?

Re: What interest to Charge on Owner Finance - Posted by Mark (IL)

Posted by Mark (IL) on October 26, 2005 at 15:52:34:

The interest rate on the note will have a direct bearing on the amount of cash a note buyer is willing to pay you for the note. You also need to consider some other factors like LTV and maybe a 5 year balloon payoff. You should check with your note buyer to determine what they would pay you for notes of various interest rates, LTVs, etc.

Re: What interest to Charge on Owner Finance - Posted by Barry (FL)

Posted by Barry (FL) on October 26, 2005 at 14:29:49:

why would you give someone who needs owner financing a rate of 6%? It’s tough enough to get that rate with good credit and the rates are going up.

I’d be charging as much as I could get, afterall, you’re the one taking the risk. I’d be thinking more along the lines og 10-12%

I’d suggest the things that would make it attractive to a note buyer would be:

The borrower’s ability to repay
Return on investment

You might get a better response on the financing board.

Barry (FL)

Re: What interest to Charge on Owner Finance - Posted by gerald(tx)

Posted by gerald(tx) on October 26, 2005 at 14:29:10:


Just a simple answer, X% would be meaningless. You can adjust either the principal or the interest to suit your case.

You are going to make up a new note, a “wrap” (or at least an equivilent, depending on how you structure it.) So the thing to do is work backwards. i.e., how much is a reasonable payment for this house in this neighborhood. In your case, you have estimated $2100.

Since you will be making the note, you can sturcture it anyway you wish. The variables are:
1= how long will it be before your TB cashes you out?
2= what is your TBs hot button - is he shopping price or payment?
3= what is your TBs record of reliability? Does his past record indicate he can cash you out on the time frame?
4= do you really want to sell the note immediately? If so, find a buyer beforehand and structure it according to what the note buyer wants.

Weighing each of these, you can adjust the variables to fit your particular situation.