I know rates for conventional loans are low…what is a reasonable rate to offer for owner financing? One owner said they would do financing at 9%, I find that to be way too high. Am I being unreasonable?
I think it depends on the deal. A good guide to use is shorter term financing commands a higher rate, longer term a lower rate. My last two seller financed deals were long term buy-holds with financing for 20 years at 6.00%. This was in December 2008. Hope this helps!
Herman
Herman A. Brunson, Jr.
HBInvestCo, Inc.
www.hbinvestco.com
Yes that does sound reasonable to me. I understand that doing owner finance is a nice alternative for the buyer but I figure it isn’t SO nice that the owner would try to pull 9% out. Another question…once the terms are set…and I mean length and rate (are there other terms that need to be decided?) how is the amortization set up? is that through a loan servicing company? an attorney, if so, mine or his?
I like Herman’s approach but I take it a little farther. I start 2% over Conventional rates then add 0.5 for soso credit score and 0.5 for small downpayment and so on. Check your State to see what the max. is you don’t want to go over. Herbster
On my two deals I added a benefit to the seller and an incentive for me to pay on time. If payments occur after the 10th, I’m to add an additional $20 as a late fee to the payment (I’ve never had a late payment =)).
I also set a default rate of 8.00% so the seller knows they get more if something goes wrong. I also add the seller as named insured for the property and title insurance so we are both protected.
As far as servicing, I run things through my business so that’s not a problem. I send statements to the seller so they know where things stand. If you want a third party loan servicing company I’ve had good experience with Virgin Money. Using them will increase your costs but they can accomplish the loan servicing for you.
Herman
Nice…this is helping…any answers for my other questions?
Also…this term agreement/contract…is this written by MY attorney or HIS? Is there somewhere i can look at a sample contract?
I assume you are the buyer. The general rule is: Your price, my terms; My price, your terms.
If you are paying the seller’s asking price, then you should set the rate and term for whatever is comfortable for you. If you set the price, then you probably need to give the seller his rate and term.
The longer the term, the higher the risk for the seller, therefore it commands a higher rate. Short term, less risk, lower rate.
Johnooch, I like what Dave said but I’m more strict. I figure I’m offering you a way to buy a home that you may not qualify for so my price and my terms then negotiate.
Also beware of a short term balloon payment if there is one.
You can amortise the payments if you download the Real Data Calc. in the free books and audios section to the upper left. Also download the Owner Will Carry ebook for good knowledge on owner financing.
I’ll email you an example. Herbster