Real estate help:What type of interest rate should I expect from Owner financing a home?

Question

I am thinking about buying a property from an owner willing to finance for me 100%.Heres the stats.

House is selling for $200,000

Ideally if he refinanced his home for 30 years at 6% His payments would be around $1200 a month.How much interest on top of that am I supposed to pay him?.The property receives about $1700 a month in rent,would it be fair to ask him to accept some of the $500 left over each month from the rent? or Am I supposed to pay more on top of that? (out of pocket) Does this look like a good deal? What typically does an owner ask for in this situation? what type of interest?

Answer 1

personally if I was selling a house on contract with no investment into the home ( 100% financing) I would charge a much higher than market rate. Depending on your credit and the actual reason he is offering financing ( maybe you have credit issues, maybe he is looking for a return on investment, maybe he is selling the home to you above what it would appraise for) should determine the rate.

Personally you can buy the home with FHA financing for little or no money down depending on the loan structure and those are at about 6.5%. So if you can qualify I would just do that.

Answer 2

You should pay current market rates to someone who is owner-financing. Otherwise, just go to a bank.

I don't know what you're talking about with the fact that it makes $1700 a month in rent. Once you buy it, it's your house. If the interest rate of the loan is what you describe (6%), then you pay him the $1200 a month (or whatever it is) and nothing more. If you want to live in it or rent it for $1700 a month, that's your business.

With owner financing, the advantage for the seller is that he gets a consistent percentage return on his money for 30 years. And, if you default, he forecloses and the house just reverts back to him. He can then sell it again and owner-finance another deal.

Make sure you have read all of the details of the loan. He may have stipulations like significant prepayment penalties, meaning you'll get hit with a large fee if you ever go to refinance or sell the home. Also, you forfeit your option of a short sale if you ever get into financial difficulty, since the guy won't want to take a loss if you can't make your payments for some reason.

The only advantage I can see for a buyer taking owner financing is that the seller's qualifying requirements may be a lot less than a bank's. And, personally, I would rather deal with a financial institution than somebody who's selling a home he happens to own outright.