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Owner financing regulations?

RANDLK

New Forum Member
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Mar 4, 2017
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5
Hello,
I own a property and am really considering an owner-financing solution to get rid of it sooner. Do I need to ask for at least 5% down (as per the mortgage rules) from the buyer or could I get away with less than that since I am financing it myself, at my own risk, of course? Also, anyone who has ever done such a deal, do you just keep your mortgage and write a new contract with the buyer?
Thanks for your time,
Raffi
 

Thomas Beyer

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Aug 30, 2007
Messages
13,881
The less you take the higher the risk of default. As such I'd consider 10% down and a higher than market interest rate ( say 6%) so they have a motivation to pay you out sooner than later.

People who can't get a 95 or 90% bank mortgage tend to be high risk, ie too low an income for the mortgage. Of course it might also be you sell the house at too high a price.

Any real estate lawyer can set up a mortgage.

If you wish to keep the existing first mortgage then you should do an agreement for sale, but again the risk is default by the buyer.
 

Sherilynn

Real Estate Maven
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Oct 22, 2007
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2,803
If the buyer has 10% down, he may be able to buy conventionally with the other 10% being in the form of a VTB (vendor take-back mortgage) if his bank allows it. So title would transfer and you would basically have a second mortgage against his house.

If he has less than 10%, you could sell via Agreement for Sale with Seller Financing. Then it's like you are setting up a mortgage directly between yourself and the buyer. The terms are set by mutual agreement between buyer and seller and include such items as: down payment, length of term, whether the term is renewable, amortization, interest rate, etc.. Remember interest income must be reported on your income tax, so it sometimes makes more sense to be paid a higher price with zero interest than mess with interest payments.

With a smaller up-front payment, you could consider a lease with an option to purchase (rent to own) rather than selling with seller financing.

Be sure to work with a lawyer familiar with these techniques.
 
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