Doing Owner Financing deal when selling a house/condo

[JoJo]

What do folks think about this?

I'm hoping to sell my condo.  I worked like crazy to get it on the market, but in a matter of 2 months, the condos went from having multiple offers after 5 days, to not having any offers due to much higher inventory.  So now I've been sitting on the market for a week with no planned offers I'm aware of.

One thing my agent found out is that the unit next to mine sold 6 weeks ago for a crazy high price but they really had a hard time getting the financing, even with 50% down.  Most of this was due to high renter occupancy in our building (over 50%, we have no rental cap). 

I'm seriously thinking about offering Owner Financing and have read a few articles on the advantages to the buyer and seller.  Honestly, I was thinking about parking the money from this in CDs for awhile anyways (5 year around 3.25% or 1 year at 2.5%... probably would do 1 year since the rate likely going up).  Seems I could get around 5% for owner financing.  But... it would be a much longer term and would have some risk - specifically default, and it is in an earthquake zone... has insurance but would be a real mess, and possible reason for default. 

[JoJo]

A few more facts:

* I don't really need access to this money in the short term (say the next 15-20 years).  I have some other deferred comp and money sitting liquid that I can use prior to social security age.
* Loan amount would be in the ballpark of 550K.  At 5% interest, this would be payments to me of 2903 per month for 30 years (could spend or invest in something else). 
* I'm pretty risk averse.  I have a fair amount in stocks but right now don't want to put more over there. 
I would for sure ask for 20% down in case the housing market drops down again.

[robartsd]

A few more facts:

* I don't really need access to this money in the short term (say the next 15-20 years).  I have some other deferred comp and money sitting liquid that I can use prior to social security age.
* Loan amount would be in the ballpark of 550K.  At 5% interest, this would be payments to me of 2903 per month for 30 years (could spend or invest in something else). 
* I'm pretty risk averse.  I have a fair amount in stocks but right now don't want to put more over there. 
I would for sure ask for 20% down in case the housing market drops down again.

It seems like it would be easy enough for a buyer with 20% down to get a mortgage unless the banks aren't convinced that the buyer can afford the loan. I don't think I'd wan to take the risk of lending to such buyers.

[onlykelsey]

Sounds risky to me.  From what I understand housing is really cooling off in the US (I'm sure there are exceptions).  Plus, like robartsd points out, any decent buyer with 20% down should be able to get financing if they're worth lending to.  Unless you offer better rates than the bank, I don't think anyone you want to be a creditor of should prefer paying you.

[JoJo]

Sounds risky to me.  From what I understand housing is really cooling off in the US (I'm sure there are exceptions).  Plus, like robartsd points out, any decent buyer with 20% down should be able to get financing if they're worth lending to.  Unless you offer better rates than the bank, I don't think anyone you want to be a creditor of should prefer paying you.

Owner Financing rates are typically higher than the bank.  The benefit for the buyer is no closing costs, PMI, quicker.

For the seller - typically can get a higher selling price, quicker to close, better rate than CDs if want to park the money.

I'm so mad at myself for not putting it on the market in May or June... I was out of town for 2 months and just not ready to list.  I'm already planning to get at least $50K less for my condo than if I would have offered it 2 months ago.  Yes, it's really gotten that bad.

As I said in the opening post, I've already been warned buyers may have a really hard time getting approval from bank due to the large # of rentals.  So much so, that the neighboring condo deal almost fell through.. took several additional weeks to close.


Has anyone done this - would love to hear from them.

[onlykelsey]

Sounds risky to me.  From what I understand housing is really cooling off in the US (I'm sure there are exceptions).  Plus, like robartsd points out, any decent buyer with 20% down should be able to get financing if they're worth lending to.  Unless you offer better rates than the bank, I don't think anyone you want to be a creditor of should prefer paying you.

Owner Financing rates are typically higher than the bank.  The benefit for the buyer is no closing costs, PMI, quicker.

For the seller - typically can get a higher selling price, quicker to close, better rate than CDs if want to park the money.

I'm so mad at myself for not putting it on the market in May or June... I was out of town for 2 months and just not ready to list.  I'm already planning to get at least $50K less for my condo than if I would have offered it 2 months ago.  Yes, it's really gotten that bad.

As I said in the opening post, I've already been warned buyers may have a really hard time getting approval from bank due to the large # of rentals.  So much so, that the neighboring condo deal almost fell through.. took several additional weeks to close.


Has anyone done this - would love to hear from them.

Sorry, I wanted to respond this in my initial post and didn't.  Was this warning from someone with a conflicted interest, like your agent?  I'd see if you can get independent info on this... apparently the couple I bought my condo were told the same thing, but literally none of the lenders I approached brought it up. 

[JoJo]

Yes, the warning was by my agent.  I know they have fliers for a specific lender in my unit.

They actually didn't advise the Owner financing, I just suggested the idea myself (knowing I want to put the funds in a fixed like investment) and trying to solve the problem that they told to me.

[onlykelsey]

I have one friend who bought via owner financing, but he put down 50%, which he seemed to think was the market (for brownstones in NYC, for what that's worth.  20% down payments are required by most condo associations, as background).  I don't know what the rate was.  I think it is a five-year term, with the idea being that he'll probably refinance before it balloons at 5 years.

[JoJo]

Yeah, doing a balloon is common.  That would in some ways protect me if interest rates go way up over the next 5 or 7 years, but backwards if rates go down.

[robartsd]

Owner Financing rates are typically higher than the bank.  The benefit for the buyer is no closing costs, PMI, quicker.

20% down buys no PMI on conventional loans too. Negative discount points to pay closing costs for basically the same interest rate premium. Quicker close can be a genuine advantage of an owner financed deal.

As I said in the opening post, I've already been warned buyers may have a really hard time getting approval from bank due to the large # of rentals.  So much so, that the neighboring condo deal almost fell through.. took several additional weeks to close.

I suppose specifics about your building could tilt the factors a bit (something that makes your specific property hard to finance with conventional lending would make me wary as a buyer though).

[JoJo]

I suppose specifics about your building could tilt the factors a bit (something that makes your specific property hard to finance with conventional lending would make me wary as a buyer though).

It looks artificially high % of non-owner occupied because several units are occupied by the children of the owners.  But we did this to ourselves when we removed the rental cap.  It was impossible to enforce.  People would just rent but then not disclose to the board like they were supposed to.  We discovered the former president was AirBnb'ing his place - a big no no.  I just want out.  Some of the bad sue-crazies moved out, but a terrible new high maintenance person just moved in.

[JoJo]

I decided not to do this.  Too much risk for not enough reward, esp if interest rates go up next year.