Do you think this guy is trying to rip me off since I'm doing owner financing through an attorney?

Question

We've discussed the house for months, and now I have the $ so we talked to a lawyer today to draw up a contract (I haven't agreed). His stipulations are:
*9% financing 48k over 15 yrs
*$5 per day late fee
*foreclosure in 60 days, rather than 90
*and I'm also not permitted to ever rent the house to anyone.. even if I were to move away and still make payments/kept my own house insurance.
*he had a "sour" face when I said I wanted a home inspection this wk
The owner won't even have the house paid off for 13 yrs bc of a home equity line. Am I better off renting for a few more years and get a mortgage?

He can't "find" his last appraisal that was done a yr ago.

Answer 1

I am concerned. The seller has an existing mortgage on the home (the home equity you mentioned). Most mortgages will not allow a home to be sold without the mortgage being paid in full. It is called a "due on sale" clause. If his home equity (which is a mortgage) has such a clause he is prohibited from selling the home to you on a land contract or any other owner financing terms. Insist on a title search and consult with the title company (not his attorney) to make sure he can legally sell the home under such an arrangement. If he can and you proceed, make sure the land contract is recorded, so your interest is documented.

These situations are always a bit disconcerting, since even if you pay him faithfully, if he doesn't pay HIS mortgage, he could still default and lose the home and thus you would also loose.

Good luck.

Answer 2

Don't do it. If not for just those reasons you've just given. You are allowed to have our own appriasal done, espically if it's been a year, the market can definatly change in that time, and you definately should have a home inspection, these are things a bank would have you do, so there are no hidden surprises. I'm sure you could get a better deal through a bank or mortgage company. There a all kinds of loans out there, 1st home owner, 100% financing, FHA.

Is this going to be a wrap-arround mortage? Does his current lender allow this, If he still has a mortgage against it, your paying him to pay his loan, not a good idea

If he defults on his loan, they will go after the house, since they are the 1st on the list to get thier money and he is using it as collateral.

I suggest and I'm sure i'm not alone, If you really want to by a house look else where. This one isn't worth it. Your time and money are better spent elsewhere.

Answer 3

Yikes. The warning bells you are hearing mean something. He may not be trying to rip you off, but the conditions he is stipulating seem unreasonable. Unless your credit is really bad, 9% interest is really high. 60 days to foreclose can lose your house (and all your payments) in a real hurry. If your credit is that bad, you really have no business buying a home right now anyway. With the housing market cooling off and the foreclosure rate at an all time high, there are a lot of inexpensive homes on the market right now. Since he still owes money on the house, what you are getting is a wrap around loan and you never really own the house until you pay it off, unlike a mortgage (I've been on the other end of a wrap around loan, so I know). Personally, I'd pass.

Answer 4

The advantages of this financing option is that it often has lower qualifying requirements, less paperwork, and the process from qualifying to getting into the house is much faster. On the other hand, this financing option also has a few drawbacks such as: you are dealing with an individual and not a financial institution, you will probably need to involve a real estate attorney to handle the agreement and title transfer, you will probably have to pay higher interest rates, and the terms of the financing will not be as flexible as a financial institutions’. Even if the terms are not ideal, you can view owner financing as a way to gain equity in a home until you can qualify for a more lucrative mortgage. So make sure your able to buy out the contract without any recourse when conventional financing is available to you.

Answer 5

Contract for deeds are not always a bad thing. You will gain tax write-offs by contacting for deed. Don't rent!!!! Contact your local real estate investor club and find someone that sells with owner financing and ask for testimonials or talk to the president of the RE Investors group as he will steer you to an honest investor. Type in owner financing in a search engine with your towns name or look on craigslist.
The seller you are dealing with sounds shady. These deals can work fine, just make sure you are dealing with a pro. A pro would never let a house go to foreclosure as he would be done in the REI business if they did. I would worry that your owner is a desperate seller and not an investor, ask to speak with other people he has dealt with. Please now that a contract for deed is NOT a bad thing, a shady investor is. By the way it is NOT against the law to violate the due on sale clause. Do you think with all of the foreclosures going on they would want to take a house back that is making payments on time? I think not. Also ask to notified by mail or email from his current mortgage provider when the monthly payment is made, that way you know it is being paid monthly. I offer this and send it to all of my customers that buy with owner financing.

Answer 6

Listen to your instincts.

Stop - no seller can dictate when/if you can rent your own home. That 60 day foreclosure notice doesn't sound like the letter of the law regarding timeliness of notification, etc..

This guy doesn't sound reputable. he's trying to dump the house.

As badly as you may want this house, walk away from any owner financing! Go meet with a mortgage officer and find out your options there.

Answer 7

Depending on how your credit is, 9% for a 15 year mortgage sounds pretty high unless your credit is fairly shaky. The $5 per day late fee also sounds high. Is it capped at all? Any grace period?

An appraisal and a house inspection are pretty standard items.

And if you're buying the house, it doesn't seem like it's any of his business what you do with it, or whether you rent it out or not.

Doesn't sound like a good deal to me. Would be cleaner to wait until you can get a mortgage, get the title, and have him out of the picture.

Answer 8

Hmmmmmmmmm. I'd feel more comforable with bank or mortgage co financing.
What I don't like is the "60 rather than 90" foreclosure. i hope it doesn't happen but if you lost your job and couldn't make the payments, 60 days is not along time.
mortgage co would not care if you board horses in the home as long as you make the payments on time and their investment is"safe."

Answer 9

I don't think you should do the contract for deed thing or the rent to own thing, sometime, it's too complicated if you are not an investor that know what you are doing.
if you are ready to owe your own home, get a mortgage and start fresh and clean, less headache.
there are programs out there that offer 0 down...where are you at?

Answer 10

I'd say if he can't meet your requests then look elsewhere. Theres no need to put up with this. You already have enough to deal with in purchasing a new house. Let him know that if he can't be upfront with you (in showing you the appraisal and getting an inspector in) then give him his walking papaers.

Also, I like the name. Radiohead is a great band.