Hi,
I have a condo for rent or sale. I have a potential buyer interrested in an owner carry.
How does it work?
What is the advantage for the seller? for the buyer?
Thank you,
Nereus
Its a Land Contract, Contract for Deed etc, Owner Will Carry the loan or Mortgage Note. The only diff is the owner is the bank. You pay a downpayment at a given interest rate for a term length. Taxes and insurance included usually. Now for the 30th time read the free book on this site. Not to be rude but everyone asks before they look. Herbster
Oops, before you even start this check with your condo association to see if they will allow it.
Thanks Herbster.
I’ll look for that book as well.
Nereus :rolleyes
Owner will carry note" means, simply put, the owner of the home will finance your purchase and serve as the bank. Whatever loan he has in place on the home will be his responsibility to pay, and you will make a monthly payment to him. However, one needs to be extremely cautious when entering such an agreement, because the terms will be established by the owner, not a bank.
There are various home financing options available in the market. Owner financing/owner finance may be the right choice if you are in any of these situations:
You do not qualify for a traditional loan:
You may have poor credit due to late payments, collections, or even bankruptcy. These may prevent you from qualifying for a traditional mortgage that you can afford. With owner financing, the credit requirements may be more flexible.
Moreover, if you are self-employed or have a new job, cannot prove your income, and do not comply with strict lending laws, then owner financing may be the right option for you.
You cannot afford to pay closing costs:
If you do not have enough money to pay the closing costs on a home, then owner financing may save you thousands of dollars.
You need to get into the home fast:
You may wish to avoid the lengthy loan process and close on the home within a few days. This can be done through owner or seller financing.
What are the types of owner financing?
You can go for an owner finance using either a land contract or a mortgage/deed of trust. There can also be a lease purchase agreement to bring it into effect. Owner financing may be done in one of the three ways.
Mortgage/deed of trust:
In this case, the seller carries a mortgage note for an amount equal to the difference between purchase price and the down payment. The seller charges interest on the balance. Or, the buyer takes a first mortgage loan against the home and gives the seller a second mortgage note for the balance of the purchase price less the down payment plus the first mortgage loan.
Let’s take an example:
Mr. X (seller) and Mr. Y (buyer) agree on a home price of $120,000. The bank requires a down payment of 20% of the purchase price, which is $24000 and offers a loan for $100,000. But Mr. Y can only afford to make a down payment of $12,000. So Mr X agrees to accept a second mortgage for the remaining amount of the down payment of $12,000 while the bank grants Mr. Y a first mortgage. Mr. Y makes a monthly payment to the bank for the first loan and to the seller for the second loan.
Alternatively, Mr. Y can put in a down payment of $12,000 and instead of approaching the bank for a loan, he may ask the seller to carry the mortgage of $108,000. Mr. Y will then make monthly payments to the seller at the interest rate the seller sets.
Contract for Deed/Land Contract:
Land contracts or Contracts for Deed can be a way of financing your home purchase through owner financing. Typically, a land contract or a contract for deed is the contract that evidences your intent to purchase the home. In this case, you (buyer) and the current owner sign a contract for a deed but the title does not pass to the buyer until the final payment has been made or the agreement is refinanced. Learn more…
Lease Purchase Agreement:
This is an agreement where the seller leases the property to the buyer for a certain term. At the end of the lease, the buyer takes out a mortgage to pay down the balance of the purchase price less the total rent payments made.
What is a wrap-around mortgage, and who is it good for?"
A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. For example, S, who has a $70,000 mortgage on his home, sells his home to B for $100,000. B pays $5,000 down and borrows $95,000 on a new mortgage. This mortgage “wraps around” the existing $70,000 mortgage because the new lender will make the payments on the old mortgage.
A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. For example, suppose the $70,000 mortgage in the example has a rate of 6% and the new mortgage for $95,000 has a rate of 8%. The lender’s cash outlay is $25,000 on which he earns 8%, but in addition he earns the difference between 8% and 6% on $70,000. His total return on the $25,000 is about 13.5%. To do as well with a second mortgage, he would have to charge 13.5%. Usually, but not always, the lender is the seller. A wrap-around is one type of seller-financing. The alternative type of home-seller financing is a second mortgage. Using the alternative, B obtains a first mortgage from an institution for, say, $70,000, and a second mortgage from S for the additional $25,000 that B needs. The major difference between the two approaches is that with second mortgage financing, the old mortgage is repaid, whereas with a wrap-around it isn’t.
In general, only assumable loans are wrappable. Assumable loans are those on which existing borrowers can transfer their obligations to qualified house purchasers. Today, only FHA and VA loans are assumable without the permission of the lender. Other fixed-rate loans carry “due on sale” clauses, which require that the mortgage be repaid in full if the property is sold. Due-on-sale prohibits a home purchaser from assuming a seller’s existing mortgage without the lender’s permission. If permission is given, it will always be at the current market rate.