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Are owner financing interest rates negotiable?

How do I know how much interest to charge for holding a 50% mortgage for my buyer for 10 years?

blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi mgoravit,

Welcome to MortgageFit Forums.

Owner financing rates are negotiable. You can ask an agent to check the current rate on institutional first or second loans with different mortgage brokers and lenders.

In owner financing you do not charge loan fees. The interest rates on owner financing are also influenced by Treasury bill and certificate of deposit rates.

This thing is for sure that you are not going to agree to a rate lower than from the one that you can earn through any other investments. You can refer owner financing section of this site for more detail on the topic.

Regards,
Blue

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi mgoravit,

You can find the applicable fund rates directly form the IRS although it is unlikely that you charge such a low interst. Atleast you can get a reference.

James

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Does this w/ bad credit I could still quaily for owner finance?

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Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Sally,

It is possible to qualify for owner financing even if the borrower has bad credit. Compared to the banks or mortgage companies which go for a thorough check up of a borrower's credit history, a seller financing the purchase tries to find out the buyer's ability of paying off the loan. The seller is lenient in comparison to the bank or private lenders.

Thanks,

Caron.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

You will get more information here on owner financing. I hope that it is going to help.

Thanks,
jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am planning to buy a lot and the seller wants to finance the lot loan with me for 18 mos for 80%, I will pay the 20%. What if he gets bankrupt and cannot pay the mortgage of the lot and I keep on paying my own part to him.

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helping_user's picture
helping_user | Joined: March 31, 2006 03:39 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Gigi.

It can be quite a tough situation if the seller files bankruptcy and stops paying for the mortgage he has taken. Once you complete paying the lot loan, you will be the sole owner of the lot. So, chances are that the mortgage company may come after you for the payment. But why do you think the seller will be bankruptcy?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am selling some acreage. My buyer has offered to pay 50% of the cost down, and wants me to finance the rest over 12 months. How do I arrive at an appropriate interest rate?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Melinda!

It will be better if you can involve a real estate attorney dealing with owner financing. The lawyer will help you to decide a reasonable interest rate which the buyer will be able to pay and you will also be having some profits.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i am the seller, my prospective buyers are unmarried,she with a 743 and the him with zero credit and self employed. Agreed Sale price of the house 170K,(house was listed at 185k) they have offered a down payment of 9500, with a 5 year payoff , interest rate of only 5.5%. House might appraise in todays market at 140K according to my broker, what is your opinion?
thank you

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eric1's picture
eric1 | Joined: January 4, 2009 03:52 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

I think your interest rate is low. They will not have the ability to get a rate less than 6.5% with the scenario you just proposed. Plus they will not have PMI with you or closing costs.

Raising the interest rate will help buffer yourself by collecting extra money from them along the way in the event that they cannot finish making the payments.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am considering owner financing a small house at $59,000. the terms are 3,000 down and 550 a month. this does not include insurance or escrow. that means my interest rate is near 10 percent. should i ask my financer for a lower interest rate since national averages are much lower or should i negotiate for a lower selling price? which would prove more beneficial to me in the long run?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

cam, what your qualifications are will make the most difference in what rate you'll pay. if you qualify for a typical bank- or mortgage-company loan, then you'll pay substantially less interest. you can certainly negotiate your rate, though it would seem that the property you're interested in has an owner whose mind is already made up.

check around to see if you can obtain financing from an institution. you'll then have more bargaining power.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I purchase thru owner financing who claims the interest and the taxes at the end of the year? Also is this the same as a "LAND CONTRACT"? Who claims interest and taxes with a land contract? thanks

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Glenn,

If you purchase the home through owner financing, you will not get full title to the property, until you meet the terms of the owner financing agreement. The seller holds the title till then and he can claim the property taxes and interest. I think for you to be able to claim the taxes, you need to be a legal owner of the property.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello-
So if I do a 5 yr owner finance and half way through I do 50% cash out with bank then bank takes 1st position? Since value is soo high compared to loan does this make it easy or does bank know you have 2nd with owner since it is recorded....

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savior70's picture
savior70 | Joined: March 25, 2009 05:14 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi ken,

[quote:08fe11c969]Since value is soo high compared to loan does this make it easy or does bank know you have 2nd with owner since it is recorded.[/quote:08fe11c969]

The bank will come to know if you have a [url=http://www.mortgagefit.com/second-mortgage.html]second mortgage[/url] on the property. You cannot conceal this fact from them. In fact if you do, it could be considered as fraud and the bank will demand the whole amount of the mortgage from you. So, if you are looking to get a loan, you need to inform about them about the second mortgage.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

ken, this is confusing. your owner financing is, presumably, a first mortgage...is that right?

if it's a first mortgage, no lender in the country is going to be willing to afford you a cash-out and keep them in that position. furthermore, a new mortgage does not automatically take first position just because it's referred to as a "first mortgage loan." if there's a mortgage currently on property, any subsequent borrowings are junior in lien position to that one.

your "bank" would absolutely require that you pay the existing owner-financed loan in full at the time of your [url=http://www.mortgagefit.com/refinance.html]refinance[/url]. furthermore, no self-respecting or reasonably sane individual would allow his lien to fall to second position in favor of a new lender.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a renter that has considered buying my house as owner finance. Today, I get $650 a month rent. I was asking $78,500 but am settling on $75,000. They want to put down $5,000 and finance $70,000. I have asked for 8% but they are wanting 6%. Should I try at least 7%.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Cindy, negotiating is a fine art, and settling in the middle is often the result. I take it that your buyers are not credit-worthy in the general sense, and that your financing is the best they can do. Interest rates are at all-time lows, and 6% is actually not a great rate in the overall scheme of things. Nevertheless, you have them over a barrel, and if you want to get 7% and they fall for it, you win. You can certainly try that rate, and if there's pushback, maybe you'll be willing to settle at a lower number. It's definitely a negotiable thing, and you happen to hold the upper hand.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am looking at possibly purchasing a home from a friend using seller financing. I recently went through a bankruptcy and this would be my only option for buying a home. He has offered to sell us his home for $220,000 with no money down at a 5% interest rate for 40 years, but having to pay it off no earlier than 10 and no later than 15 years. Our concern is with the value of the home. I understand that due to my credit situation if I am going to do seller financing I will most likely be paying top appraisal price if not more for the home I am purchasing but what is too much: 110% of appriasal, 125% of appraisal? What should a buyer of seller financing expect to pay over the actual market value of a home?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The buyer shouldn't pay more than the actual market value of the home. You should always pay the actual market value of the property.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I agree...I don't see any reason why a non-qualified borrower would have to pay in excess of value for a home. There's certainly no legal requirement for such a ridiculous arrangement. The only kind of requirement of that nature that would make sense is if a crazed buyer chose to pay an exorbitant amount of money for an inferior valued home.

Then again, we overpay for stuff all the time, don't we? How else would all these coffee joints charge you $2 for a large coffee (oops...is that a "tall" I meant?).

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello, I'm selling a small house and 1/2 acre for $65,000. Buyer wants to pay 20% down and owner finance with me for the remainder ($52,000) for 2 years, balloon payment at end. My Realtor suggests I charge 6% interest rate. What do you think? Thanks!

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Anne!

Welcome to forums!

You can inform the buyer about it and charge 6% interest rate. If the buyer can afford to pay the interest payments, he will go with it. If he can't, then he will negotiate with you for lower payments.

Feel free to ask if you've further queries.

Sussane

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Anne, how much you charge for interest is really your choice. Have you determined that the borrower is a solid risk? Have you seen a credit report? Have you seen pay information that makes you comfortable that the person can pay you back? Pretend you're a real lender and look at this deal from that standpoint. You stand to lose a lot if you get into a bad deal, so you need to take all precautions.

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