Owned Free and Clear and Seller financing?

Question

So I found a home that is perfect for me and my husband (as an owner occupant). Through my research, I discovered that the owners own the property free and clear and are now looking to move. They've reduced the asking price $10,000 here recently and it's making me believe that they are motivated. Is it likely they'll go for seller financing or a lease option? Should I go through the agent to ask such questions or send them a letter through the mail?

Please advise and thanks!

John J. · Answer

If this is a home that best suits your family needs, the first thing I would do is pull your personal credit report to ensure full accuracy.  Then, I'd contact several banks speaking to mortgage experts explaining your situation that you need x amount of money for a home and tell them of the obstacles you face.  Then ask them if there's a program to help you with free credit repair or for a referral to another company/person that can help.  The golden answer you're looking is how long will it take you to qualify for the loan amount needed to secure the property.

Once you have this information, I'd submit an offer for owner finance with inspection contingencies, a little bit of earnest money, and the terms (down payment, interest rate, who pays 3rd party fees to collect payments from you/distribute to the owner, term used for payment, how long you have to obtain other financing, balloon payments etc.  Then I would provide as much information about yourself that you feel comfortable sharing as an addendum.  I'd submit a letter explaining why you want to purchase the home, how it fits for your family, rental history, work/personal references, information from the lender explaining the time frames for you to obtain your own financing.  When you're faced with what to share, just ask yourself what would provide peace of mind to the seller signaling you're a legitimate person that will take care of the property with a plan in place to obtain your own mortgage in the future.

As far as the realtor goes, I would find a different agent that has experience in drawing up owner financing deals.  The contracts can be quite complicated, and you might seek legal counsel in drafting up a specific one to meet your needs.  Be aware you might have to pay higher interest, more than the property is worth (in 2 yrs when you obtain financing, sometimes the seller wants to hedge against the appreciation by asking for a higher purchase price now), and fees you don't normally encounter in a bank financed transaction.  Be prepared to negotiate all the terms knowing paying the 3rd fees vs. a 1/2% interest might be the same amount of money at the end of the month.  The more familiar the realtor is with the process, the better off you'll be.

Brian Gibbons · Answer

I would have the realtor present at the table

and I would have the Realtor's 3% available to be paid.

Many Realtors will make an installment sale look not attractive.

Here are steps I take to make installment sales attractive.

3 columns

1. Listing with an agent and paying the costs to sell

2. Renting and waiting and dealing with tenants

3. Seller Financing - Installment Sales

Download Sources to Educate the Home Seller on Installment Sales

Stephanie Dobbs · Answer

Stephanie

Stephanie Dobbs · Answer

Thanks so much Mr. Gibbons! That is my exact fear with working with an agent, is their lack of knowledge and belief concerning seller financing or lease options. I look forward to reading the information you sent! Thanks again!

Stephanie

Stephanie Dobbs · Answer

John you make a great point. I have expressed to the agent that showed me the property that he will be factored in the deal, but sometimes I'm sure that's not enough. Given there's no commitment and I just met this agent, I was thinking of writing the sellers a letter, but I don't want to ruin the potential relationship, as you've stated, which is why I've posted this forum.

As far as working to find seller finance properties, in Maryland, I have not found an agent that has supported the idea. This agent seemed fairly new, but was open to lease option and seller financing and even asked that I spell out such in an email so he could persuade the selling agent/seller that it's a win/win situation.

So what's the best next action?

John J. · Answer

Lease options tend to be a little tricky with real estate agents, mainly due to when the "sale" occurs.  Upon drafting all the paperwork, the sale doesn't commence until the buyer "exercises" the lease option, which triggers a transfer of ownership.  This leaves a potential for several months or even years to pass before a commission can be collected (upon transfer of ownership).  You might not ever exercise the option to buy leaving the realtor with no compensation.  With that said, you might want to discuss a fee you'll pay as a good faith measure on your part.

In terms of whether or not to try to contact the owner yourself, I would discuss this with your realtor.  Making the contact yourself might damage the relationship you have with a team member, if the realtor feels you're going out of your way to do his/her job.  It's always a good rule to maintain open communication with team members to avoid wrongful assumptions, plus it provides you feedback (what the realtor can do/not do to help) to see if the person is actually worthy of being on your team.

The realtor should also be able to provide you with searches specifically for owner finance properties.  You might also want to ask about references with banks the agent has; many banks offer a credit repair program to help you get your score up, putting you in qualification range of mortgages.

Kyle Penland · Answer

Certainly...It never hurts to ask the owners if they are willing?  Maybe even do a lease to own type plan also so you can get your credit back and buy the home at the end of the lease.  Good Luck!

Stephanie Dobbs · Answer

Thanks Mr. Penland, I appreciate that. I'm developing tough skin, so I know that's a possibility I may have to fact. I am going that route due to our credit (for past tough situations) which will be corrected in the next year or so. We need a home in a good community that offers good schools for our kids, so we are diligently working to get everything corrected.

Kyle Penland · Answer

They may possibly go owner financing, but doubtful they will owner finance with zero down since they have realtor commissions.  It doesn't hurt to try, but don't get your feelings hurt if they say no.  Why are you trying owner financing route instead of FHA 3% down?

Owned Free and Clear and Seller financing?

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