Beware! What No One Tells You About Owner Financing a Home

so ever since the interest rates have been going up I've been noticing more and more owner financing deals in this video I'm going to tell you about how owner financing works and the things you have to look out for and I'm going to tell you a horror story about what can happen [Music] so with the rates going up the way they have many people have been priced out of regular financing and they're looking for other options so owner financing is turning up more and more as I said earlier owner financing can be a good deal for people that cannot get qualified through a regular bank or mortgage process this can be good or it can be bad the big thing is to make sure you know exactly what you're getting into the reason I say it can be good is because you can negotiate the terms unlike with the bank they're pretty set in stone with how you have to qualify what you need to qualify whereas owner financing the seller can be a little bit more lenient than a bank might be so as a buyer you have the chance to negotiate some of the terms whereas you wouldn't with a bank so how these deals normally work is you put down a large down payment and then you come up with an interest rate and you make payments like you would on an normal mortgage but it's right directly to the owner of the property usually these deals are set up in five or ten years maybe as again they can be set up any way you guys agree upon but the ones I see are usually five to ten years and then at the end of that whatever you still owe needs to be paid off in a balloon payment so the reason a lot of people are doing this is because right now they can't qualify for a regular mortgage so they go into this owner financing deals because they think in five or ten years down the road they'll easily be able to qualify and then pay off the bloom payment with a mortgage or however they think they're going to come up with that money that's left at that point so like I talked about earlier the negotiation up front is huge in this process because this is where you're going to agree upon all the different terms the seller usually has more leverage in this obviously because he owns the house and he's also taking it off the market for five or ten years whatever you guys agree upon so normally he's going to want a very large down payment up front to make sure that he's not just taking it off the market and basically renting it out so this is where you really have to be aware of the fine print and know what you're signing sometimes these sellers they'll write these deals up themselves or they'll have their own lawyer write it up and just hand it to you and if you don't know what you're looking for that's where you can really get in a bind the biggest thing that I see where people get in trouble is a lot of these owner finance deals are very strict as far as when the payment is due and what happens if you miss a payment with a bank mortgage they have all kinds of federal laws they have to follow and it takes a while as we talked about last week in the Foreclosure video to actually evict somebody and take the house back a lot of these deals I've seen very strict rules where if if you miss a payment or you're late on a payment the owner the seller can take it all back and then you route everything you're out your huge down payment and everything you've paid on for the last couple years whatever it's been so you really don't want to get yourself in that position where you end up paying tons of money for basically a rental that you get nothing out of the other thing that can happen and this is a warning for the sellers too you want to understand the deal that the seller has going if he's has a current mortgage right now and then he's trying to sell it to you as an owner finance deal a lot of mortgages in the fine print don't allow this and if the bank finds out that they're doing an owner finance type deal or trying to sell the place they can call the remainder of the loan due so if the guy still owes 200 Grand let's say on the house the bank can call the loan do and if he can't come up with it we'll guess what he loses the house and you lose the house because it's not yours yet and this brings me to that Horror Story I was telling you about earlier so back in 2010 2011 when there was all the foreclosures and I was doing most of my business was dealing with foreclosures uh how it would work is I would get a call from the bank or an email saying hey you have a new listing out at 123 Elm Street whatever it may whatever the address was and I'd have to go out there and make sure nobody was living in it or find out the situation if that they had already moved out if it was vacant what the deal was I had to check it out because the bank now owned the house and a lot of times I'd go out there and I would find that it was being rented out and I'd have to tell the renters sorry but the banks gun or the house has gone back to the bank so you have to move out the bank would provide cash for keys which was an amount of money to help the people out whether it was renters or the owner obviously the owner didn't have any money and that's why it's been foreclosed upon so they would give them a few thousand dollars whatever it was to help with move out expenses and to get a new place well I go out to this one house and I knock on the door and some people answer and I explained that this has just gone back to the bank and they they started crying they were in tears it was horrible because four months before they had done a owner finance deal with the owner of this house and I think they put down like twenty thousand dollars and then they've been making their payments they've been on time they've been doing everything right according to the deal they have with the owner but what the owner didn't do and this is a little warning out there a little news flash there's some bad people out there and this particular owner was just a horrid human being this person had gone into this owner financing deal with this people knowing that they were going to lose the house and they you know set up this deal took the 20 grand took the payments every month and they weren't making payments to the bank well the bank doesn't know this is going on so it wasn't you know not that I'm defending the bank but the bank had no idea what was happening and when I went out there and explained this to them like I said they were devastated they realized they had just been screwed and you know it was a bad deal I got them way more money for the cash for keys than I normally would have because of the situation but just a bad bad deal and something you really need to keep in mind if you're going to try and owner finance deal because like I said most mortgages Don don't allow this so make sure you find out up front if they do have a mortgage and the other thing is if you're going to do these deals make sure you you hire a lawyer I know they're expensive but get a lawyer to explain the fine print explain what's what you're getting into or even write it up if the other guy hasn't done it because it's going to save you you could save you a huge heartbreak down the road if you happen to miss a payment or later whatever the deal may be but I can't stress enough hire a lawyer to write it up and make sure you go through a title company because when you do that that's also gonna they'll do a title report that's also going to show if they have a mortgage on it then you can get into details on that as well and see if it's allowed which like I said usually it's not so I don't want to scare you off if you are looking at an owner finance deal they can be good but you just really need to protect yourself because you're getting outside of a bunch of laws that you know protect you from Banks Banks if you go a regular mortgage route they don't want the house back they would love it if you just made your payments and with that being said that means that if you do miss a payment or you get into a bind or whatever they're usually willing to work with you whereas an owner finance deal you may just lose it right away and not have time to work things out with the owner again it's going to depend on the owner but you have to protect yourself and go into this knowing what could go wrong so once again make sure you use a lawyer make sure you know exactly what you're signing and some of these owner finance deals can work out and can be a good deal so just protect yourself if you have any questions or would like more information please reach out we're happy to help and we'll see everybody next week thank you for watching our video please call text or email for more information and don't forget to watch our other videos about Montana

Channel: Living in Montana

Views: 14,816

Keywords: Owner Financing, Real Estate, Interest Rates, Home Buying, Home Financing, Mortgage Tips, Legal Advice, Contract Negotiation, Financial Planning, Foreclosure, Housing Market, Montana Real Estate, Personal Finance, Financial Education, Real Estate Advice, Property Investment, Buying a Home, Housing Finance, Loan Alternatives, Real Estate Market, What is Montana Like, Living in Montana

Id: 7anv9ToMxJU

Length: 9min 30sec (570 seconds)

Published: Tue Jun 20 2023