I’ve been doing a lot of research but still have not quite found the answer I need. :help
Here’s the situation:
I own a house that I owe $107.5K (@ 7.25% interest), but it’s only worth about $90K. :banghead We currently pay a little over $1k month PITI. I’ve never made a late payment over the past 4 years and my credit is GREAT. :cool
Financially, we’re not motivated to sell but we are quite motivated mentally and emotionally x :crying. The house has been good to us but we’re looking for a more fulfilling life rather than having to clean it all the time-- we’re busy folks. We would also like to be ready to move at a moment’s notice.
Market rent for a house like mine is about $1k/month.
Enough of that…
Here are some options I’m thinking to get rid of it.
Refinance down to 4.375% driving the monthly payment below $800 PITI and owner finance it for $1k/month and $3k down; try to get the buyer to refinance the home in 2 years.
Don’t refinance it and let someone step in my shoes on some kind of sub2/owner finance setup and then have them immediately refinance down to $800. I could market it as “OWN THIS HOUSE FOR $800/MONTH.”
Modify the loan and then owner finance it.
Lease purchase.
Refinance myself and rent it out for $1k.
I would love to get your expert thoughts on this as I’m sure there is something I’m missing.
You’re not that far under water from my perspective.
I would want to know how nice is the house?
Assuming the house is really attractive, let me list some things to think about that motivate me to seller finance instead of doing a lease option…especially on a low/no equity, or underwater property. Before I go any further, “underwater” is in the eye of the beholder. I sell underwater houses that my buyers think are great deals, because they can own a house now, and not wait until their credit gets straightened out.
Okay, here goes…
You can command 5 to 10 percent down when seller financing on a Land Contract/Agreement for Deed, etc., over a lease/option.
You will get a HUD1 settlement statement from the transaction “proving a sale” so that the banks won’t require to you qualify for two loans; the old one and the new one when trying to buy another house.
You can set the sale price wherever you need it to be, as the payment is usually the most important thing to buyers that need seller financing. Not to mention that the “interest rate” starts looking really good, the higher the price goes. It’s all relative. We set the price up to 15% above market value when we sell on terms, since the buyers that most want terms, know they’re gonna pay for it in the first place.
Buyer think of themselves as owners. Renters with an option, don’t think that way. There’s a different psychology with buyers …they won’t blink at fixing things that break …and won’t think to threaten to hold up payments until you fix stuff.
Using a note servicing company to handle payments will keep your buyer from associating you with the “bank.” If they default, it’s less likely to get personal, as the note servicers often perform collection and default/foreclosure services for you.
Market the house to the most likely buyers by emphasizing the benefits that most resonate with that target buyer.
Don’t market to “bargain hunters.” “Low down”, “steal this”, etc. just begs every bargain-hunting, cheapskate with no money, or credit to call you. You want the motivated buyers with money calling you, not the ones looking for freebies. This goes against the grain of most amateurs I come across… They confuse volume selling “offers” with unique, one-off transactions. Unless you’re doing three or four houses a month, don’t put yourself in a hole using a furniture store style ad.
BTW, you don’t want to market to, or finance chronic “deadbeats,” just those with a solvable credit issues that appreciate temporary financing.
The note servicing company that receives payments from your buyer can be worth GOLD to everyone in the transaction since they provide an unassailable, 12-month statement of on-time payments for your buyer to use in qualifying for refinancing the note.
There’s other reasons to seller finance and not do a Lease Option, that include interest and depreciation deductions that make the deal more attractive to buyers. Meantime, I highly recommend that you NOT do a Subject To transaction in this situation. You are an investor, so you want to keep the title until your buyer refinances the loan.
Oh, and that brings me to my last point… When you seller finance, your buyer is NOT getting a new purchases money mortgage… He’s “refinancing” the note. There’s a big difference in how easy it will be to get new financing.
Finally, if you do a lease/option, your tenant/buyer IS going to have to qualify for a new “purchase money mortgage,” which is much more difficult to obtain in this market than a refi.
I hope this helps. I could say more, but I must eat!
[size=10pt][size=10pt][size=10pt][b]Thanks for the input!
:biggrin
The house is nice. We put in new laminate wood floors, changed out the kitchen floors, fresh paint on the inside and outside (due to tornado), new roof, and other great fixins.
3 Followup Questions
What do you do with the down payment money? Keep it just in case the buyer defaults?
Do I put a term that at the end of 2 years :coolthat the investor has not refinanced I can request an additional $3K down?
The deed :deal is not turned over to them until they get the property refinanced?
What do you do with the down payment money? Keep it just in case the buyer defaults?
Do I put a term that at the end of 2 years :coolthat the investor has not refinanced I can request an additional $3K down?
The deed deal is not turned over to them until they get the property refinanced?
[quote]On number 1, we KEEP the down payment money…! :smile Actually, we put aside two loan payments to make sure our buyer doesn’t spoil his payment record by accident …and to protect us from a inadvertent default on the loan …which in this business is the unforgivable SIN. We can NEVER have a late payment with a subject to transaction …ever.
Meantime, if our buyer is late, or misses a payment for any reason, we don’t get caught flat footed; give ourselves breathing room; and time to respond to the situation. Also, the “payment history” doesn’t get spoiled that the note servicing company is tracking for everyone concerned. The buyer depends on that payment history in order to get new financing. So, we want to maintain “hiccup insurance” in place all along the way. BTW, the loan payment company won’t lie. They just report what actually happened with the payments.
Regarding number 2…
Whether or not we put a deadline is dependent on the equity situation we have. We buy and sell underwater houses …where the “refinancing deadline” is tied to an appraisal. The buyer has six months to get a loan after a successful appraisal (which may or may not happen over the next few years). If the buyer needs more time, we charge $5,000 for a one-time 12-month refinancing extension, which is not credited to the sale price.
Yes, we keep the deed until the buyer pays us off.