Selling my property via owner finance - How to Get it Done?

Question

I'm selling one of my properties in Cincinnati, Ohio. This guy is putting down a 30% down payment and will finance the rest through me. I was planning on doing 2-3 years at 12-15% interest. Is that the normal owner-financing rate these days?

I have never sold a property without a realtor before. Can anyone guide me on specifically what I need to do to sell property without a realtor and record a mortgage on the property for what he owes me?

Jon Holdman · Answer

The simple answer?  Get a lawyer and a title company and do everything through them.

What you're going to do is to create a purchase contract between you and the buyer.  You'll take that to a title company.  They will set up a closing.  They will do the title search and issue the title policies.  You should do this just like any other transaction.  You (as seller) buy a owner's policy for the buyer.  The buyer (as borrower) buys a  lender's policy for the seller (also you).  The title company will take care of recording all the documents.

You'll give the new buyer a deed.

The new borrower will give you a deed of trust or mortgage, which ever is used in OH.

The title company records both of those.

The borrower will also give you a promissory note spelling out all the details of the loan.

A lawyer could certainly create all those docs.  The title company might, too.  Another investor in your area might have them.

You want to check with a lawyer about your loan terms to be sure they're legal.  15% seems quite high for this sort of deal, to me.  That's common for hard money, but that's a commercial loan.

LeJon Ratchford · Answer

John,
                              
                              I would speak with a a note buyer. Ask them what suggestions would they give to someone structuring a note  and possible interested in flipping it in a year or two. Even if you are not interested in flipping the house the RE Buyer would go into detail what they consider a good note. Marc Falkner is one. I would recommend performing a  Google search. You may want to contact several investors to get several different perspectives. Some wont buy below two or three months of seasoning. Some will buy after 30 days of seasoning. Not many will do simo in the note industry at this time (I MAY BE WRONG). Now 30/70 LTV  and creating a 3year interest only mortgage and a  balloon after 3yrs would be away to do it. Once again i would suggest speaking with a RE Note Buyer.As Jon said I would get a lawyer to help you construct the contract once you decide the right direction you want to go in. Keep us updated I am interested in how this turns out.
                              LeJonR

Daniel Yoo · Answer

Sorry to bring up an old topic, but I was hoping the OP could bring us an update.  Thx.

Bryan Hancock · Answer

Regarding this point you may want to look at some Ohio-based hard money DOT docs...if such a thing exists in Ohio.  The following is standard in our hard money lender's loan terms proposal:

*Pre-Payment Penalty/Make Whole Premium, if ever charged, will be immediately credited back to the Borrower.

The, "Make Whole Premium" is a credit back to the borrower in the event the timing somehow makes the interest charged usurious under Ohio law.  The borrower would be credited money BACK from the lender in the event that the loan ends quickly and the APR (or whatever is used) exceeds the usury laws.   You could structure your note and DOT like this if you are worried about being called a loan shark.

I would need to know more about the collateral for the loan (the property) to tell you what is an appropriate interest rate.  I do agree that 15% sounds frothy....at least based on Texas market rates for owner finance buyers.

I also agree that you should use a title company to help with the docs.  You may also need to use a MLO due to the new SAFE Act...to negotiate the terms of the loan.  Non-compliance carries STIFF penalties ($20+ if memory serves) so talk to your attorney about that.

Jon Holdman · Answer

You just need to make sure that doesn't exceed OH usury limits.  If it doesn't, and you and the buyer agree then you're good to go.

Shanti S. · Answer

12-15% seems high to me too, but is used for mobile home loans - John didn't say what the value of the property is here - if it's a $40k property then the interest wouldn't be ruinous.

Are you also expecting to amortize the loan over the 2-3 years only, or are you planning on requiring a balloon payment then?

Selling my property via owner finance - How to Get it Done?

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