I have an owner who has an assumable note for owner occupants with a rate that’s below 6% interest. She only owes 106k on the property and market is maybe 5-10k more. She only wants enough money to move and just can’t handle the payments.
I was thinking she can owner finance with 5% down and a low interest rate. She’s in a new home community, so has to compete with a builder offering zero down/zero closing. Any other options for her or is owner finance the best we can do if we can’t sell it conventional/FHA?
Hi Dee,
Realistically, she’s not in a position to list with an agent. By the time she pays commission and closing costs, she’s upside down. With the kind of competition you described, a reduced list isn’t advisable either. Is FSBO an option? She would save roughly $4000. Alternatively, if her note is assumable, she may end up with more net proceeds. She may have to offer to pick up the assumption fee $325- %550 and wait to receive the majority of her money. It would be structured somewhat like a wrap where buyer would offer a second mortgage note for x% amortized over 10 years with a 2-3 year balloon payment. Not quite sure what home appreciation in your neighborhood is but, you’d need to see 7-8% annual increase for this seller financing. The Buyer would need to refi in 2-3 years to pay off the second mortgage to you. You would also want to record the second mortgage. These days assumptions are credit approved so be prepared for a 30 day process. Has she considered a lease option. Even if I was hoping for the assumption, I’d still put the RENT TO BUY sign in the yard. You can never have too many potential buyers/ tenants. I’ll bet she could get at least 3% down and since her interest rate is low, she’d most likely create a positive cash flow. I’d do a 2 year option. Do you know the fair market value?? Just a few thoughts.
Hope things work out.
DS
Thank you for the response! I mentioned FSBO, but she works all day, doesn’t feel she has time to show the home, isn’t sure what to do, and doesn’t feel safe letting people come by with it just being her and her daughter. She also doesn’t want to work with anyone else since she knows I sell houses quickly and she’s a personal friend. Since we aren’t a discount brokerage, I can’t offer limited services.
We definitely thought about lease options, which is why a seller finance came up.
FMV is about 110-120 and she owes 106k, so it’s very close. The homes rent for 995-1100/mo, so it could be better to just rent them since her payment is only about $900/mo. I figured I can try to find an investor who can just take over the payments for her as well.
Tough situation. I think you’re right about making it a rental. I’d still try to get it into a lease with an option. You may be able to get 3% down. I put low down in my ad and find that most people are ok with a little down. What do you think?
Good luck!
DS
The seller was up for it when I mentioned it before. We have some new rules in TX that’s discussed extensively in another forum, but I’ll get her with the right people so she can handle everything properly.