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Buyer Wonders How to Structure an Owner Financing Offer – If the Owner Will Carry, What Should You Do?

If you’re a buyer right now, it really behooves you to know how to structure a seller financing offer. In the live deal that I’m sharing with you below, the buyers specifically looked for properties that were owned free and clear (there was no mortgage on the property) and zeroed in. Here’s the conversation in a nutshell:

Hi Dawn,

I saw your website while searching for a way to put together a deal to purchase a home. My husband and I are the buyers and have found a lake home in north Georgia that we would like to buy and we have a great realtor. The seller is willing to owner finance the home for 10 years @ 6% with a 30 yr amortization but wants more of a down payment than we have at this time. We have a great income but a few years ago through a failed business we damaged our credit. We have spoken to a mortgage broker and we qualify for the new FHA loans with our income and even with our credit but last september my husband became self employed and they need 2 years on the tax return before the underwriters will do the loan.

So, we are searching for a creative way to raise the cash for the down payment he is wanting. Is it likely that we might structure a note for the cash needed in the form of a second and then sell it at closing to raise the funds? You might have some other ideas that we could try ? Like I said before we have the income to support this home but we just do not have the cash.

Thanks in advance for your help.

We chatted on the phone and by email so I could get a very clear picture of the needs and objectives of all parties, and then I responded below with what I would have the listing agent (who will double end this deal) submit to the seller:

Hi Laura,

Great talking to you again. So here’s the recap:

Purchase Price: $675,000
Down Payment: $20,000
Face Value of Note: $655,000
Interest Rate: 6%
Amortized Over: 360
Due In: 120
Monthly Payment: $3,927.06

In light of the low down payment, property to be placed in a 2 party trust to give the seller the ability to regain possession of the property through eviction (as if buyers were tenants) instead of foreclosure upon any buyer default. The buyers will be able to take all the usual mortgage interest write-offs.

Property to be purchased “As Is” (no requests for repairs or warranties)

Escrow to close in 21 days (likely sooner)

Just after close of the first escrow, I will buy a portion of the note.
I will bring $75,000 to the closing table in exchange for either:

  1. the first 24 payments of $3,927.06 OR
  2. half of each payment ($1,963.53) for the first 67 payments

If the seller accepts the first option, he will get:

  • Buyer’s down payment: $20,000
  • My note purchase: $75,000
  • TOTAL: $95,000
  • Estimated closing costs (if agents will take 4% total commission): $50,000 (trust, title, escrow/atty)
  • At closing: $45,000

Two years from now the note will still have a balance of $638,416.82, he will start receiving the payments:

  • $3,927.06 for 96 payments: $376,997.76
  • When the balloon pays off in 10 years, he will get $548,140.82
  • Grand total to seller: $970,138.58

OK, so there’s my pitch. Please feel free to have the agent and/or seller call me regarding any questions they may have.

Best of luck!

  1. Michelle Charriou

    Is it risky? Is it a risk for a Seller to carry a note of 80% on a Residential lot in a gated community worth $1.million. This buyer who wants the note to be carried plans to build a home on this property work $1.million+. Wouldn’t the Seller/Note carrier be at risk if this buyer defaults on construction loan? Or a possible mechanics lien on the property during construction of home? This market in California is so volatile this scenario could possibly happen. I believe that if it were to happen the Sellers claim to the property on the note would not override claims by mechanics/construction liens and he could eventually risk loss of property and his investment entirely? Would this be the case?

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