Owner Financing Question

I am an owner of a property which currently has a tennant that wants to purchase the property. Unfortunately, he does not have a great credit score. He is self employed and makes very good money.

We started out on a lease option but he wants to do all these things to the backyard and wants me to give him not just the credit back on the yard but the perceived additional value of the yard. I have told him that I am not looking to put more money into this house.

So he suggested that I finance him. I have a few concerns with this?

  • As an owner, does this make sense. In someways I think it does but wanted to get your thoughts on this.
  • how do I title this?
  • what rate should I give him?
  • he plans on buying out right in cash within two years.

Or should I counter with a lease option still on a fixed price right now with no rent credit back and ask for a large option, say 20%.
thank you in advanced

Howdy Littlefish:

The going rate for owner finance is 8 to 10%. Ask him what is the most he can put down on the purchase. It has to be at least enough to cover attorney fees if you have to get the deed back and then possibly even do an eviction after the foreclosure. Perhaps $3K would cover your expenses worst case scenario.

How do I title this? Not sure your question. In deed of trust states you give him a deed and he gives you a note and deed of trust. Get the DOT notarized and recorded at the courthouse and he does the same with the warranty deed.

You can give him a balloon note in two years or longer or an extension agreement at the end of the two years he pays another $3000 down for one more year extension.

Sounds like he wants a deed. Texas and Colorado just passed laws NO MORE LEASE OPTIONS. Your state may do the same soon and you will be miles ahead of the game.

You may want to split the costs of preparing the documents.

Thanks tedjr for the quick response.

So let me see if I understand what you are saying.

  1. he wants the deed.
  2. So I have to do now is find an attorney to get the deed of trust drafted.
  3. Ask for at least 3% down…he can afford more, should I ask for more?
  4. What about taxes and insurance? How do you figure this one out? Do I just add it to the mortgage at 8%.
  5. What happens if he is delinquent on his mortgage payment?
  6. What are some clause I should have on this deed of trust when I have an attorney draft it for me?
  7. Split the paper cost.


Howdy Littlefish:

  1. Give him the deed.
  2. You could do it yourself or hire a paralegal
  3. Get more if he has it for sure and willing to pay it. Ask for more than you will accept and he may pay that much or even more.
  4. Better to get him to pay 1/12 of taxes and insurance each month or get a 1 year policy paid up from buyer is even better. Lenders usually get 3 or 4 months payments up front in the escrow account you may want to do the same.
  5. Foreclose and repo the house
  6. Tax and insurance collections. Everything else is cut and dry
  7. Usually the seller pays to have deed drawn and buyer pays for the note and deed of trust but that is kind of splitting hairs as they are usually about the same or maybe $50 more for the buyers side.

The buyer should at least want a title commitment and may actually want a title policy. Who incurs this expense is negotiable but usually paid by seller.

Thanks again for the quick response.

So I got the pdf copy of the deed for the State of washington.
So I am the beneficiary and the trustor in this case and my buyer is the trustee, is this correct?

  • once I have it signed and notarized, I take it to the public recording office and recorded.
  • who and how do I draft up the note seperately or should this be in the deed of trust as well?
  • Do I have to notify my current lender too that I am doing this?


Howdy Littlefish:

You have it mixed up. You should get some professional help from an attorney to do the legal work. It is so simple for me to do because I have done hundreds but hard to explain in a few sentences. LOL