short term seller financing

Creative Real Estate Financing
7yFollow

short term seller financing

Jasmine C.Pro Member
Real Estate Coach · Reno NV · Member since 2015 · 273 posts · 61 votes

I have a property I want to seller finance to a prospective seller but I have never done a seller financing deal. I am trying to learn what is fair for myself and the potential buyer. it is a SFH 3/2 that is currently rented for 1175 with a year long lease. good condition in a ok neighborhood. The buyer is not able to get a loan because of high DTI and is working on selling off some non performing properties to become eligible to get loans again. This will take a year so they want a seller financing for only a year. The property is worth 100-110k with a 63K mortgage of 4.3% on the home. They can put 5k down now but once their properties are sold they will have enough down payment for a traditional loan when they get their own financing in a year.   They want to own it on title and we want to keep the mortgage in place until they get their own financing and have that pay off the loan.  could you help me understand what is considered to be a fair term and price for short term seller financing?

1Reply
34 views

Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Jasmine C.:

I have a property I want to seller finance to a prospective seller but I have never done a seller financing deal. I am trying to learn what is fair for myself and the potential buyer. it is a SFH 3/2 that is currently rented for 1175 with a year long lease. good condition in a ok neighborhood. The buyer is not able to get a loan because of high DTI and is working on selling off some non performing properties to become eligible to get loans again. This will take a year so they want a seller financing for only a year. The property is worth 100-110k with a 63K mortgage of 4.3% on the home. They can put 5k down now but once their properties are sold they will have enough down payment for a traditional loan when they get their own financing in a year.   They want to own it on title and we want to keep the mortgage in place until they get their own financing and have that pay off the loan.  could you help me understand what is considered to be a fair term and price for short term seller financing?

 Jasmine,

Sounds like he is doing a "subject to". You are not a motivated seller. The property is rented and it cashflows. So I wouldn't do the deal as presented. Also...

  1. $5K is too low downpayment when selling a property on owner financing. I will ask for 20% or $22,000 of a $110,000 sales price. 20% is serious skin in the game and the chances of default is lower.
  2. NEVER give him title. Owner finance or contract for deed works like this: he is your borrower-buyer and you are the bank-seller. He does not have title but he has equitable interest in the property.
  3. By them having YOUR loan but you giving them the property, they will pocket all the cashflow. What is your incentive for doing that? To get the $5K upfront?
  4. There is a chance (albeit a low one) that YOUR bank can call the loan due because there's transfer of title or transfer of equitable interest on the property without paying off the loan or informing the lender

Makes sense?

3Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @Jasmine C.:

    I have a property I want to seller finance to a prospective seller but I have never done a seller financing deal. I am trying to learn what is fair for myself and the potential buyer. it is a SFH 3/2 that is currently rented for 1175 with a year long lease. good condition in a ok neighborhood. The buyer is not able to get a loan because of high DTI and is working on selling off some non performing properties to become eligible to get loans again. This will take a year so they want a seller financing for only a year. The property is worth 100-110k with a 63K mortgage of 4.3% on the home. They can put 5k down now but once their properties are sold they will have enough down payment for a traditional loan when they get their own financing in a year.   They want to own it on title and we want to keep the mortgage in place until they get their own financing and have that pay off the loan.  could you help me understand what is considered to be a fair term and price for short term seller financing?

     Jasmine,

    Sounds like he is doing a "subject to". You are not a motivated seller. The property is rented and it cashflows. So I wouldn't do the deal as presented. Also...

    1. $5K is too low downpayment when selling a property on owner financing. I will ask for 20% or $22,000 of a $110,000 sales price. 20% is serious skin in the game and the chances of default is lower.
    2. NEVER give him title. Owner finance or contract for deed works like this: he is your borrower-buyer and you are the bank-seller. He does not have title but he has equitable interest in the property.
    3. By them having YOUR loan but you giving them the property, they will pocket all the cashflow. What is your incentive for doing that? To get the $5K upfront?
    4. There is a chance (albeit a low one) that YOUR bank can call the loan due because there's transfer of title or transfer of equitable interest on the property without paying off the loan or informing the lender

    Makes sense?

    3Reply
  • Jasmine C.Pro Member
    OP
    Real Estate Coach · Reno NV · Member since 2015 · 273 posts · 61 votes
    7y

    Thank you for the advise. That really helps me figure things out

    0Reply
  • Alex D.
    Rental Property Investor · Honolulu, HI · Member since 2015 · 143 posts · 61 votes
    7y

    If the buyer doesn't pull the trigger, I'd love to be the backup buyer in your property. I would just need to go over the details :) 

    0Reply
  • Isabel Maria Almonte
    Member since 2018 · 5 posts · 0 votes
    5y

    I have this question, in today's Seller's market, does it make sense to sell with Seller's finance and wait 7 years? This is my brother's case. He owns a rental house, not mortgage. Right now the house needs approximatelly $15,000 repairs, excluding the roof. The house is rented for $925.00 monthly. He has recouped his original investment of $54,000.00 already. He proposed to his tenant to purchase the house AS Is for $150 K with 10% down, 5% interest for 7 years. Seller is offering Seller's finance. I think if my brother fix the house, and put it in the market, he can make now in the lower side, $185 K. So, does it make sense for him to ahead and sell it to his tenant? How should I suggest my brother to structure this deal to make the most?  Also, what will be the closing costs this buyer has to pay?  Your input will be greatly appreciate it.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free