Creative Financing for Personal Residence ????

Question

Just wondering if any investors have used creative financing options for their current personal residence or do you go the traditional route and just get a mortgage ? Specifically land contracts, lease options, or owner financing.

Kris Haskins · Answer

great question.   I've been buying houses for over 10 years.  I honestly feel the best way to buy is Subject to.  I own my owner occ subject to.  And my best deals come subject to.  This way the mortgage payment never shows up on my credit report.  Subject to is simply buying the house from the seller, and keeping the loan in their name...   The next best is owner financing, and yes they are out there...  If you believe they are.   If this info helps you in any way, pls vote for this post....

Cierra Seay · Answer

@Jon Holdman  thank you for your insight. We're just trying to find other ways of purchasing a home currently working on getting credit to excellent status now but I just don't like dealing with banks. The only way I would do it is if I did an FHA203K which I'm strongly considering.

Jon Holdman · Answer

@Cierra Seay  its whatever you negotiate.  IIRC, we put down about $3,000 on a $55,000 house with a 15 year fully amortized note.

IMHO anyone's past experience on subject to deals is not a good indicator for the future.  Notes being called is unlikely.  But it does happen.  I attended a local seminar a few months ago and one speaker asked the crowd if anyone knew of a note being called.  Several people out of a few hundred raised their hands.  That's still a limited sample, but better than just one person.  There was a lengthy post some time back where @Dion DePaoli listed several reasons why banks might call these even if the payments are being made.  If you're going to do this, be sure you have a backup plan in case you're one of the 1% (just a guess) that does get the loan called.

I'm also concerned that if interest rates do rise lenders will start looking for these loans and calling to get their low return money back.

A bigger risk, IMHO, is insurance.   Not the lender finding out about you from insurance.  Rather getting a claim paid.  I had a claim after our killer storms last year.  Notwithstanding the hassles of dealing with the insurance company was the HUGE hassle getting the checks cashed.  I have both a first and a HELOC on this house and checks were made out to me, my wife, and both lenders.  I ended up with three checks, one for cash value, one for depreciated value since the work was being done, and a final one for the permit fees.  Both lenders had a different process for all three checks.  Navigating these processes, providing all the paperwork and getting all the endorsements was a complicated and time consuming process.  I have trouble believing you will be able to pull this off on a subject to deal without having the original borrower involved.

OTOH, I have a landlord friend who also had claims from that storm and, for at least one of his houses, they insurance company just wrote him a check.

Cierra Seay · Answer

@Steve Vaughan  thanks for the insight I do mean buying a residence for me and my family to live in. The current house we paid cash for it was a foreclosure but our family unexpectedly expanded and we're looking to upgrade sometime next year.

@Kris Haskins  I like the thought of the mortgage never being on my credit report.

@Jon Holdman  what type of a down payment is usually required for owner financing in your experience ?

Steve Vaughan · Answer

You mean buying your personal residence, right?  I would stay away from Land Contracts / Contracts for Deed where title isn't in your name.  Personally, I made sure we had a down payment and reserves before buying our own house so we went conventional.  In my area, I have found very few homeowners with homes I would want to occupy being open to carrying financing but I suppose they are out there!  With our first house, the house and it's location was more important than finding creative financing.

James Wise · Answer

Interesting. @Kris Haskins

Im going to have to look into sub2 a little deeper. Are you typically paying sellers cash at closing? If so how much?

Kris Haskins · Answer

I've seen @Jon holdman all over this site, seems to be knowledgeable.  Perhaps he could share some personal experiences on the sub to pit falls.  As for me, I've personally had a seller call the bank and tell them the house was sold to me.  The bank then called me and asked me if I wanted to change my payment date.  I'm sure there are bad stories, and I'd love to hear them, only from personal experience and not theory.  My mentor has been doing this since the 1908's and he's not had 1 loan called.  hence the reason I do it..

James Wise · Answer

@Kris Haskins have you ever had the mortgage company call the note due?

Subject to is very interesting & a potental money maker but the risks scare me. What has been your experience in last 10 years of buying homes this way?

Jon Holdman · Answer

First house I bought was owner financed.  It was a free and clear house owned by an elderly woman.  Bought it off the MLS.

Personally I find subject to too risky for my risk tolerance.

Creative Financing for Personal Residence ????

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