Owner Financing When Selling Home

[RWTL]

We have our house listed as a traditional sale not accepting owner financing.  Our real estate agent called me yesterday and said that we had an offer for 10K over listing for someone who wants us to provide owner financing at 3% interest with 10% down (30 years).  I can see the appeal for the buyer.

My initial reaction was no, since we want to purchase another home and planned on paying cash.  I'd have to take out a mortgage at 6+% and perhaps pay PMI. We don't have a mortgage on our current home. 

Seems like a losing proposition, let along the risk of default.  Is there another way to structure this or look at it that is a winning view?

[maizefolk]

The buyer is essentially asking to pay 70% of what the house would cost them if they needed to take out a 30 year mortgage at 6% interest rates. If you're in enough of a hurry to sell that you'd be willing to cut the price that much, it's worth exploring. If not, I'd let this offer go.

[uniwelder]

That offer doesn't sound appealing at all.  10k over asking doesn't mean anything when their interest rate would only be 3%, plus 10% down isn't very comforting in the event they do some serious damages and default.  Plus that you really don't want owner financing.

How long has your house been on the market?  Is this the first offer that has come through?  I would think you'd have someone with a traditional mortgage with an offer in no time, considering how tight the housing market seems to be.

[RWTL]

Thank you both.  It's been on the market just over 30 days, but it was also over the holidays.  We've had 6 showings and several were interested, but nothing panned out yet.  We do feel that we're at the higher end of the market due and have figured that we'll drop the price by 10-15K and still feel good about the selling price.

I told our agent yesterday that we were going to pass - one because the math didn't add up to me, and secondly because we want to remove stress not add to it with risk around default.

Appreciate you all looking at this with me.

[reeshau]

Are you in a hurry to move?  The buyer may have interpreted your low season listing as a "motivated seller."  I wouldn't do anything extraordinary before the Spring selling season kicks off.  Although, you have put yourself at a little disadvantage for this spring--your listing will look old, by then.

Homebuilders are offering mortgage buydowns for their buyers, to keep their prices high.  If my own circumstances dictated some out-of-the-box thinking or addressing an offer like this, I would counter with a buydown.  Now, that is likely a $30k - $50k item, so $10k over still means nothing.  (Either research what it would cost for a house around your price, or offer a flat amount toward a buydown)  But offering a buydown helps buyers where they hurt (monthly payments) without getting entangled with them for 30 years.  It also makes them go through the mortgage origination process, so someone else--a bank--is vetting them.

[CatamaranSailor]

I purchased my first home at age 24 with seller financing. I put 10% down. The loan was at 8% (higher than what the going rate was at the time) with a 5 year balloon. We used a lawyer for the contract, a title company for the closing and an escrow company managed the payments. It worked out well for all parties involved. Ended up refinancing after two years when interest rates dropped.

That being said, I think you were smart to pass. Owner financing is a nice backup plan if you really need to sell. However, you'd only want to do it in the right circumstances. In my case, I had known the seller for years, had rented the house prior to buying, I waived all inspections (the house was a mess) and she knew I'd never miss making the monthly payments. In my case what I was missing was a long enough credit history to qualify for a mortgage.

Good luck selling.

[RWTL]

We're not in a hurry to sell, so we can wait it out.  @CatamaranSailor, your situation sounds like it was ideal for this type of situation.

For me, another piece of the puzzle was that the realtor said this was an investor.  I had this vision of them buying the house and renting it out - and that person trashing the place.  It's fine if they want to do that, but I don't want to carry the risk....not for 3%.  Maybe with 120K down at 8-9% and a balloon payment.

[CatamaranSailor]

We're not in a hurry to sell, so we can wait it out.  @CatamaranSailor, your situation sounds like it was ideal for this type of situation.

For me, another piece of the puzzle was that the realtor said this was an investor.  I had this vision of them buying the house and renting it out - and that person trashing the place.  It's fine if they want to do that, but I don't want to carry the risk....not for 3%.  Maybe with 120K down at 8-9% and a balloon payment.

Honestly, it sounds like the "investor" was someone who'd read an old Carleton Sheets book. Hard pass.

[RWTL]

We're not in a hurry to sell, so we can wait it out.  @CatamaranSailor, your situation sounds like it was ideal for this type of situation.

For me, another piece of the puzzle was that the realtor said this was an investor.  I had this vision of them buying the house and renting it out - and that person trashing the place.  It's fine if they want to do that, but I don't want to carry the risk....not for 3%.  Maybe with 120K down at 8-9% and a balloon payment.

Honestly, it sounds like the "investor" was someone who'd read an old Carleton Sheets book. Hard pass.

I may have....eh hem....bought that book at one point.  <shakes head and lowers it>

[SilentC]

Maybe if you’ve had the house on the market for 100 days you could work with them on the financing if you don’t want to just cut the price.  I wouldn’t do 3%.

Not wanting to totally hijack this but has anyone here bought with a healthy downpayment and below market seller financing?  Lots of older folks in my area (like bought in 1990) stubbornly holding onto June 2022 prices with their dated houses listed on and off for months at a time with different realtors.  I wonder if June 2022 price +3% seller financing could be a magic bullet for these very price loss averse sellers?