Seller financing for family members

[Haley M.]

Hi everyone - we've owned a property for the past 10 years that we rent to family members. We charge them less than the mortgage, but with the tax benefits we end up breaking about even every year, so it's not an asset but it's not losing (much) money. We're now in a situation where we'd like to get rid of it to free up some of our mortgage options, though our family still wants to live in the house. I think seller-financing might be the way to go here, since they would have a hard time qualifying for any type of loan. The house has just finally become above-water after the recession, so we pretty much owe exactly what the house is worth at this point. 

My question is, how would seller-financing work in this situation? We still have a mortgage on the property, and the rent they've been paying is less than the mortgage payments. We're really not trying to make money off the deal, we're really just trying to unload this without losing money. Any advice is much appreciated!

[Patrice Penda]

Hi @Haley M. 

I don't see how you could do seller financing.

For the buyer, seller financing is very similar to bank financing except that the seller (you) is now the lender.

You could have done seller financing if you owned the house free and clear.

But considering you have a mortgage on the house, you can't really extend a secured loan to your family collateralized on the house without paying off your lender.

Ultimately, it seems like you really want to help your family member while no longer having that house as a liability.

I am not sure if you have looked at it, but if I were you, I would check with a mortgage broker if there is any way they could get a loan in their own name.

I imagine rates have gone down since you bought it, so they could have lower monthly repayment and if they really cannot afford the down payment.

Assuming that they have always paid their rent on time for the past years that you have had them tenant, the main concern would be coming up with a down payment.

Ultimately, I see great benefits in shifting your liabilties and getting rid of that property and sellling it to them.

Considering that the amount owed on the house is what it is worth now, you would saved real estate commissions by selling it to them.

Those savings could be used towards their down payment maybe?

Good luck!