Nancy Roth, whooo, :) I believe I'm pretty good at understanding proposed transactions as I've not just seen them before but I've seen them many times before. I do read between the lines and at times a key word trips my situational awareness.
The initial key points; A buyer who gets a lump sum settlement-I already addressed such indicates the buyer may lack the ability or inclined to save, mentioned in the original post.
About a 7% spread in the amount to finance on two choices, but the term is adjusted which means there is no or little difference in the payment amount. Sounds like the loan is being manipulated to more of a set payment, not the same perhaps, but close. Standard practice is to have options as to the length of time, interest rates and where more is paid down, it provides a smaller payment obligation.
Another issue was your wanting an insured loan, why would an individual seller go there if they were confident the deal would work? I understand why, what you may not know is that PMI only covers 80% of the loan, never 100%, so it doesn't offer much protection when the loan to value is based on market value and where the down payment is over 10%. Knowing too, that a buyer getting seller financing rarely gets an appraisal, I assumed you set the price.
While you did not mention who approached who about your selling it is very possible for a landlord who is aware of a tenant receiving a lump sum to swoop down on that as an opportunity to sell, not saying you did, saying it happens often. Saying the buyer is very excited indicates to me that she might not have been aware that she could buy and probably didn't initiate the sale conversation.
While you stated she can afford either payment you also stated she would not be able to get a conventional loan. You never mentioned a balloon payment but I assume you are fully amortizing the loan. Be that as it may, you are seller financing to someone who can't qualify for other loans with as much as much as 25% down.
Then there is the position that a seller is really "helping" someone. I was heavily involved in non-profit organizations helping people get into housing, I know where that line is as not everyone is suited to be a homeowner. Usually what I see is that when a seller claims to be helping some poor buyer out it actually arises out of a justification of an underlying sence of guilt. People in business don't sell properties to help the buyer out so much as they do to help themselves out as well. Did you mention other properties in her price range that might be seller financed or tell her to inquire with any non-profit organization for any other opportunities? I doubt it, since she is so excited with this opportunity.
Frankly, when someone says they are trying to help someone (unless they are related or really old and great friends) it sets off an alarm that says look deeper, when someone invokes a religious motivation I hide my wallet. It's not human nature to help another party out more than yourself in business, fair yes, selling at a disadvantage, no.
Now, Nancy, I did not say you were being predatory but if you look at the picture above objectively you might see why I was advising to take care not to be predatory. I didn't say you were screwing anyone over now did I (?) but that it could appear that way.
If there is not room for the buyer to finance 3.75% more of the deal than your 18+% down option and that causes my suggestion to be predatory, then she is already too high with her ratios (which you may not have considered). I am glad to hear that she will have half her money left after the sale and that she is not dumping most or all that she has in the deal.
And now that I see your hopes are that she can payoff the property in 10 or less years, well that says alot too. Due to her income being fixed and social security disability payments she probably doesn't top $1,200 a month. An amortization to get a ten year payoff?
36% DTI brings us to a total payment of 432.00, I assume the DC area is not cheap, it's a high cost of living area for some government workers, so I'm sure taxes and insurance are close to a hundred a month, guessing. So, 332 at your 8% with a ten year payout is a loan amount of 27,363 and at 25% gives us a sale price of $36,484 or at 18% down a price of 33,369. From what you said, I'd then guess her lump sum was about 50K. :)
So, it really appears that the sale price is 40k or under and if the property is in the DC area, I'd say it might be in a war zone. Certainly an older home, certainly not in the Arlington, Va area where I stayed.
Hopefully the place will remain standing another 25 or 30 years putting her in her elderly years. In ten years she can afford to begin a maintenance plan. It's great she has some reserves, I suggest you tell her not to go buy a new car and save most of it at her age.
So, I will also assume that you're selling with a payment that is close to her rent and is how you decided that she can afford the place. Did you factor in maintenance, I can see that could be the reason to sell the place.
BTW, you're selling a non-owner occupied dwelling so it sounds like in this case the SAFE Act applies to your deal. See an attorney to set up whichever plan she selects. They can keep you from having your deal APPEAR to be predatory. :)
George P., There are tons of posts on seller financing and things to watch out for. I suggest you search for "What do you want Mr Note Buyer" it's about doing a seller financed note to be sold on a condo but has alot of info in it. If you can't find a topic you can always ask and start a new topic. Good luck to all! :)