Loan origination? Need help SELLING a home with private money.

[Stephen Robertson]

Alright, so I have a house valued at about $60k. The amount owed on the home is over 50k. We'd like to sell the property quicker than the average 150 days on the market in our area without selling at a discount. Having worked as a realtor, I know that people jump at the opportunity to a seller financed home, but we don't have that option as we need to cash out. We're looking for someone who wants to cover the loan secured with the property and provide us the terms so we can market the home this way. We'd need the existing note covered at closing, but could possibly be flexible with the (limited) equity. Ideas? Better suggestions? Let me know. Thanks.

[Jon Holdman]

Stephen Robertson, you're not really selling with seller financing, if you want to find someone else to fund the deal at closing. Rather, you're trying to find a lender who will make the loan to your buyer. Often "seller financing" implies the borrower will be subject to less scrutiny than a normal loan. And the buyer may not need to be as qualified as they would for a normal loan. Usually its the seller who's in the best position to make the loan because they want something out of the deal. You certainly qualify on that last count because you say you want to sell quickly but at a fairly high price.

You're unable to make the loan, though, so you're looking for someone else to do it. That makes this more like a normal transaction than seller financing. Loan rates for OO properties are around 4%. A private lender might want something closer to 8-10%. As a seller, you would probably be lower than that because you're getting something else out of the deal (a quick sale at a relatively high price.)

There are alternatives to straight owner financing. You could do a wrap. You create a new mortgage that "wraps" the existing one. They buyer's pay you, you pay the old mortgage. You could sell with a land contract. Similar deal on the payments, but you retain title to the property until they fulfill the contract. You could also do a lease option where you lease the house to your tenant/buyer and also give them an option to purchase sometime fairly soon. They clean up their credit and buy the property a few years down the road.

Yet another method, which may be challenging in your case, is to initially make the loan yourself. As you sell, the buyer/borrower is borrowing from you. Then, post closing, you turn around and sell your loan to a note buyer. That would typically be at a discount. Say you sell with a 15 year, 6% loan with a 10% down payment on a $60K sales price. You get the $6,000 and a $455.68 monthly payment. You turn around and sell your loan (i.e, "sell the note") to a note buyer. The note buyer will want a discount. That is, they will pay less than the $54,000 face value. If the note buyer wants, say, a 10% return on their money, they would pay you $42,404.66 for the note. (A $42,404.66 loan at 10% for 15 years has the same $455.68 payment you're getting). So, your net on the deal would be the $42,404 you get for the note plus the $6,000 you got up front. There would be a period of time where you had sold the property but still had the loan in place with no security. That's "selling subject to (the existing loan)" and I think that's very risky. This strategy works better for a free and clear house.

Something to consider is that what you need to pay off your existing loan is absolutely irrelevant to setting the price. The market sets the price. If you price it will (i.e., toward the lower end of the comps), you will sell quickly, assuming there is reasonable demand. Many sellers make the mistake of looking at available comps, cherry picking ones toward the high end and pricing their house there, or even higher. Those houses set and set. That's why the DOM is high. They slowly reduce their price. Eventually, those houses sell. But often at a lower price than they would have received had they priced the house well from the outset. And, in the meantime, they've made another half dozen payments. An appraiser will look at ALL the comps, not just the high ones. Appraisers often choose comps toward the low end. So, even if you get a buyer who's willing to pay a higher price, the appraiser may come in with a lower price, forcing you to drop your price or lose the deal.

What you own is only relevant to the extent that you may have to bring cash to the table. Or you may just be unable to sell.

If you want to do this deal at a premium price, you're probably going to need to consider doing one of those more risky strategies like a land contract, wrap, or lease option.