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The 60/70 yo couple that made an offer could get only 125K, not the 140 they offered.
They have to keep their payments at 900 a month, and were planning to get an FHA loan since they don't have the 20% down for conventional.
The house has not been appraised.
How can I / how should I offer to finance the remaining 15K?--or how can I loan them the money for the down so they can get a conventional loan, and when do they pay it back?
Thinking of two IOU's of 10 and 5K, but what interest rate? I don't think they have any collaterall so there would have to be a due on sale clause, and they would have to be recorded.
How and when do they pay on those notes?
Both would have due on sale clauses (how do we write the notes?) and the propety is not to be leased or rented out.
And what happens if they default on their mortgage to the bank? Will I ever get that $15K?

What didn't I ask you folks,
What do I need to ask the buyers, what do I need to check?
When do they write (and notarize) the ious to me, before they get their mortgage or after?
Do they tell the lender the sale price is the mortgage amount, (125K, or the full amount, {maybe 140K?} )
Which is reported to the city/county/real estate/title co?
WHO reports it to the real estate commission, the city? The title co, or the lender? Or ME?

Help me work this so I can sell that house to them.
I will use a title co to close. Do I need an attorney to write the IOUs, or do you have a boilerplate one you can post for me?
We're beginning discussion of this tomorrow (Sunday) morning.

Thanks,
Ofgift
Who really needs a lot of guidance on this...

[Jon Holdman]

Does FHA allow an owner second? I'm not sure, but I don't think they do.

I assume you mean they are approved for an FHA loan amount up to $125,000. With the required minimum down payment of 3.5%, that would be a purchase price of $129,500.

Or, perhaps you mean they're approved for a $125K purchase price, which would translate to a $120,625 loan amount after the down payment.

Please clarify which of these applies. I'll assume its the second.

When you say "IOU" you really mean a promissory note and a deed of trust (or mortgage, if that's what's used there.) Those are official documents. They would be part of the closing documents and would be handled by the title company. Those notes MUST appear on the HUD-1 for the transaction or you and the buyers are committing loan fraud. I'm sure you do not want to do that.

You want $140K, so that must be the price on the HUD. They would have to put down a 3.5% down payment, $4900. There will be closing costs, too. With the loan origination fee, I'd guess the buyer's closing costs around $4000 +/-. You could offer them a credit for some of those, but that will reduce your net proceeds, and you're going to have a similar amount of closing costs on your side anyway.

Assuming the FHA loan amount is $120,625, you have a gap of $14,475. I'm not sure why you would do two notes rather than just one. Realize FHA thinks these folks do not qualify for this money. So, even if FHA allows it, this is an incredible risky loan. I'd ask for a minimum of 10% interest.

They will (I assume) qualify for the $8000 tax credit. So, I'd have a $8000 payment due by July 1, 2010. That gives them time to file their taxes, get that credit, and pay it to you. A five year note on $14,475 at 10% would have payments of $307.55. Say you close on October 1. They would make 8 payments on that loan before 7/1/10. That would make the balance $12,935. Interest due in July would be $108. So, after the $8000 payment, the loan balance would be $5,043. Continuing with the $307.55 payment, the remaining balance would be paid in 18 months.

You can play with those numbers to your hearts content.

Do keep in mind that if they stop paying, you'll end up spending several grand to foreclose.

The real key is whether or not FHA will even allow this. You must do this above board. Any side agreement between you and the buyer that does not appear on the HUD is loan fraud.