I believe this is the proper term for what has been proposed to me by our tenants (currently in a rent-to-own deal on the house in question).
Current they are unable to secure a mortgage loan from a bank, they do have money (from family) to put down towards the purchase of the house. They are asking that we act as “the bank” and they will continue to make payments to us (some interest, some principle) for some amount of time yet TBD. At that point, they plan to finish the purchasing process of the house through a real bank.
Pros as I see it:
No longer liable for maintaining the house
Get a large sum of cash up front and continue to make our required payment on said house
Hopefully will not have to go through the headaches of listing the house for sale again or finding new tenants to rent from us
Cons as I see it:
Is it legal if I don’t actually have 100% ownership of the house? (still making payments)
What if they don’t buy from us at the end of the TBD timeframe? Did they maintain the house?
If the market picks up in a few months (yeah, right) am I missing out on a “normal” buyer?
Who has done this before? Who has insight? Will the Bills be .500 this year?
I probably wouldn’t want someone who can’t secure a mortgage from a normal bank to “give me their word” that they will buy my house at a date TBD. Sounds like a jerk session.
Just my two cents.
---------- Post added at 04:25 PM ---------- Previous post was at 04:24 PM ----------
Plus all their collateral and money down is from a family member? No thanks.
As far as not being liable to maintain the house, the fuck you aren’t. It’s in your name, it’s your problem. If the basement foundation cracks or it needs a new roof, do you really expect them to pay for it? If they can’t secure their own bank mortgage, they probably don’t feel its necessary to pay for anything they’ve made an obligation to.
Lol im sorry but isnt this EXACTLY a “Hold the Mortgage” scenario?
I am by no means an expert on the situation but im under the impression you can absolutely do all of that with the assistance of an attorney. The only downside is having to deal with the mess yourself if they default… Aside from that youre literally the bank and theyre literally a buyer. A lot of people buy houses this way, particularly dumps for flipping that a bank wont give a loan on.
Again, im under the impression this is how it works. Jim1234664 just owner financed, im sure hell chime in here.
you’re talking about doing a wrap, which if you look in your mortgage contract will allow your bank to call your mortgage (if you have enough in reserve to pay the balance and don’t mind the possibility, no big deal)
that being said they rarely will call it and this is a fairly common practice
If you want to go through with it I would suggest a 30 yr amort & above market interest to make it worth your while as well as a 5 yr balloon to allow them to get financing. (you could extend this if you so desire)
as others have alluded you may have to forclose if they dont come through and ultimately its still your investment to guard until its out of your hands completely (what good is foreclosing if the house is trashed or has a ton of deferred maintenance?)
on the plus side with a 30 yr amort and 7-10% interest (which is heavily front loaded) you will pocket a ton of $ for 5 years and they will have not made much of a dent in the principal. so not only would you get 5 years of payments but you also get a lump sum for almost the entire initial sales price when they finally get that bank loan
I wouldn’t reccomend doing this for someone who isn’t “in the game” already but hey, crazier things have happened… maybe it would work out
---------- Post added at 04:49 PM ---------- Previous post was at 04:43 PM ----------
This would be a cut and dry owner hold except he doesn’t own the house outright, there is a mortgage already on it. this is not illegal but the banks have it written in their mortgage contracts that a wrap around mortgage will not be allowed and therefore they can call the note to be payed in full with 30 days notice
As long as the checks keep rolling in though from what I hear they will very rarely call it back
Yeah I knew there was another name for when you dint outright own, however ive heard they ALMOST NEVER call them back except a few years ago in some extenuating circumstances related to the mortgage crisis.
Let me say this, I have no interest in trying to make money of this deal (other than the equity out of the house). I never wanted to be a landlord, we just got caught up in having 2 houses after buying the new one before we sold the old one.
They have been doing a fantastic job over the last 12-13 months of living there as far as maintaining the house and yard. No complaints there. They have been a little jumpy at calling me about coming to look at stuff. 2 shingles lifted up in the wind, no real damage (or possibility of damage), 1 leaky faucet which was fixed by tightening a fitting.
Just remember, personal and economic circumstances change all the time and in this case, if they do, you may have to be prepared to deal with it. Dont look at that higher interest rate as skimming off the top; look at it as a premium for the extra time and personal risk you are incurring. After all like you said, being a landlord/bank isnt your business. “You see a sign above my garage that says dead n***** storage, do you? NO, you dont, because storing dead n****** isnt my business.”
If you have no interest in landlording and they can’t qualify for a loan then unfortunately it looks like you should list it and find a retail buyer (hopefully you didnt extend their lease?)
I would totally do it like mentioned above just make sure its heavily in your favor. You are after all helping them out and taking risk in doing so. If they have a good down payment it should cover most of anything that could go wrong. I’d still keep insurance on the place to make sure their payments cover your a$$ under all conditions.
No, we haven’t extended the contract at this point. It is up at the end of March, with 90 days prior to the end them making their decision to buy or not. They want to buy, her mother will give her $40k towards the house, but she won’t qualify for a loan because she has been out on disability starting shortly after they moved in (and she started a brand new job).
I’m a little hesitant to take the offer, but we’ve had good luck with them taking care of the house so far. I’m pretty sure the mother would bail her out if they got in a bind, so I don’t think they will miss any payments. I’m just not sure that in a year or 18 months or whatever the timeframe is, they still won’t be able to buy.
I’m also not sure the bank would even allow us to do this type of deal. We have a VA loan and those seem a little more strict than conventional.
I wasn’t planning to start looking into the housing market until January to see what we should list the house at and how things are selling. Is the market any better now than it was 18 months ago?
Yes, houses are selling now, but most of them are selling cheaper. If you draw it up legally such that they forfeit their down payment if they fuck up you really have very little to lose.
Owner holds are amazing…surprised to hear some of these reactions…do any of you have any real experience with an owner-hold?
I mean a lawyer would be giving you a legally binding contract. If they default, the house is still yours. In the meantime, they gave you a huge DP, and are going to be paying YOU the interest (at likely a much higher rate than what banks would offer, amoritized too), on a term that would likely be very short (again, compared to a bank)…