owner financing

[Richard Kolb]

Hello everyone,

I have a little bit of a dilemma and was wondering if anyone here could give me a little guidance. I am going to give you a little scenario and in order to simplify things I’m going to use very round number. I am in talks with this very sweet little old lady from Sweden who owns a duplex whom I contacted through direct mail. She definitely doesn’t want to deal with the tenants or property anymore. The property is owned free and clear. So, I made an offer to her for $1000 at signing of a lease option and then $2000 per month for 50 months under a lease option and I would sublease to the current tenants. Then the balance of $150,000 would be due at the end of the 4th year. I figured I could easily get a mortgage for $150,000 on a duplex with comparable sales today at $250,000. Here is the issue. I don’t think she understands my offer. She keeps saying “what happens if you decide not to buy at the end of 4 years then I have to start over.” I explained to her that I would never walk away from 100,000 in equity. But she keeps says that all I am out is the $1000.

So here is my question. To put her mind at ease I am thinking of making a new offer but reversing it. Instead of building up $100,000 in equity then paying off the balance of $150,000. (which is better for her because the property stays in her name till I pay it off.) What if I offer to take out a mortgage for the $150,000 1st. Then make payments of $2000 per month over 4 years. This way in her mind instead of me only paying her $1000 up front I am paying her $150,000.

The only problem I see with this scenario is that (as I understand) for me to get a mortgage on a house for almost any amount I would need to take title at that time. So how do I put her mind at ease that I am going to continue to make payments over the 4 years of $2000 per month. 

Any help would be greatly appreciated.

[Jeff Rabinowitz]

What you are proposing is simply that the owner carry back a second mortgage on the sale. There are fewer lenders who will finance a property with an owner second (due to the ridiculous lending environment) but since the first mortgage will be such a low LTV (assuming the property appraises) I would think you would be able to find someone who would do this. Of course, your DTI ratio and income must be sufficient to qualify for both payments. If the banks in your area balk at this try some credit unions who service their own loan portfolio. Best of luck.