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I am in need of some answers. I have relocated for a new job. We have our house up on the market and we got approached by a buyer about owner financing. We are selling our house for 206000 and owe 180,000. We have been approached by a potential buyer willing to put down 60,000 for our house but does not qualify for traditional lender financing and wants to go though owner financing with a 2-4 year short term payment with a balloon payment on the end.
I am a novice to mortgages, and this is only my second home. I am wondering what the risk are to me by selling my home this way instead of the buyer going the traditional way. My down payment for a new home was to come from the selling of our old home. I would also be taking on 2 mortgages, my old home and my new one and I will be in another state working.
I guess my real question is that I don't have enough experience with owner financing to make an informed decision as to whether it would be beneficial for me to sell to this buyer or just wait till we get a buyer with traditional financing.
You will have to qualify with both mortgages (including taxes, insurance and HOA on each).
Why can't the borrower qualify? Negligence, or something legitimately unforeseen? How do you know the borrower will qualify for a traditional mortgage in the future? You will have to keep clear cut books on the payments. MAKE THEM PAY WITH A CHECK, IN THE EXACT SAME AMOUNT EVERY MONTH, IN EXACT ACCORDANCE WITH THE AGREEMENT. If they pay in cash, or the amounts vary, there goes your buyer's proof of payment history, on which the future legit mortgage rests.
Having said that, I'd wait for a legit buyer. A lot of banks won't even work with a private mortgage. If a bank with a billion dollars (or more) to lend refuses to lend to this buyer, why in the world would you?
I have been approved for the second mortgage, I talked to my lender. I also talked with my Realtor and from what they could tell me, this couple is moving from California and he has steady paying government job in Arkansas, but for some reason he has a lot of debt and low credit score and could not qualify for a traditional mortgage.
I have a friend that is a mortgage lawyer and she is suppose to call me later today, but the more I think about it the more it leaves a bad taste in my mouth. I am just wanting to get all the facts and learn as much as I can to make an informed decision.
The guy needs to pay down his debt, thus raising his score, and go with a loan with a lesser down payment, such as FHA. If his score gets into the 700s, he can go with a combo loan of his own, with as little as 5% down.
You better read your current mortgage paperwork very carefully. It most likely has a "Due on Sale" clause in it. Meaning if you sell it, they want the mortgage paid off. Consult a real estate attorney before doing anything.
Speaking from my own personal experience, RUN, DON'T WALK from this deal. There's a reason this person can't get a "regular" mortgage. Don't take on this problem.
As has been noted, there is likely a due-on-sale clause in your mortgage, so selling in this fashion is probably not even an option. But...that's not a bad thing. You don't need the headache of owning two homes with two mortgages, not knowing whether this guy is going to lose his government job, trash your house, or whatever. Your best option is clearly to sell your house the traditional way and be done with it.
Speaking from my own personal experience, RUN, DON'T WALK from this deal. There's a reason this person can't get a "regular" mortgage. Don't take on this problem.
While I agree that it's important to think through and evaluate many of the issues brought up for consideration, from my perspective, there is merit to considering the buyer's offer... a 30% down payment goes a long way to mitigating the risks... unless, you are getting multiple offers at your asking price, then sure, just do the simple thing and sell it conventionally.
There are many reasons that people can't get traditional mortgages, not all of them translate into the buyer being a bad credit risk.
If selling to someone who can qualify for traditional financing means you walk away from your perceived equity by selling for less, and means you'll be leaving the state without having the house sold, I would really consider going further with the conversation with that buyer. There are ways to mitigate the risks of the due on sale clause, and, given the fact that he is only asking for enough time to clean up his credit, I think it might be worth the risk to leave your financing in place. There are multiple ways to structure an owner carry type transaction that meets the financial needs for all parties, and honors the risk profile of the principals as well.
Good luck!
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