Owner financing in real estate transactions

Also known as seller financing, owner financing is growing in popularity in today's economy. With the credit markets slowing down and people finding it harder and harder to borrow, owner financing is looking better and better as an alternative to traditional financing. Owner financing is when the seller of the property basically agrees to take payments rather than a lump sum if you aren't buying the home for cash. A seller can lend buyer money for the entire purchase or seller can offer owner financing as a second mortgage if buyer isn't approved for the sale price and both the buyer and seller are otherwise in agreement on the purchase price.

The best case scenario for a seller to offer owner financing is if he/she owns the home free and clear. In other words,owner doesn't need the proceeds from the sale in order to pay off his or her mortgage. Furthermore, the seller does not need the proceeds from the sale of the home for his/her new home

The terms of the purchase and loan need to be right for both parties. The interest rate, duration and repayment structure need to be acceptable for both parties. This usually requires a good deal of negotiation.

Some of the benefits for a buyer and seller to consider if you are entertaining the idea of owner financing:

1. You don't have to get traditional financing if owner finances entire purchase. If seller is willing to finance a portion of the loan, this might help you lower your down payment or help you qualify for traditional financing, but won't completely eliminate traditional financing.

2. Interest rate of loan is independent of market rate. It can be a negotiating tool for buyer and seller to make the deal happen. A seller may offer owner financing and may ask for a higher rate because he/she is taking on a financial risk (that a lender typically would). On the other hand,a seller might offer a lower interest rate if he or she is a motivated seller and buyer is reluctant to go forward with purchase because buyer either thinks mortgage rate is too high and/or buyer cannot afford monthly payments with the market interest rate.

3. As a seller,if you are financially comfortable with owner financing,you could be opening your home to a wider pool of home buyers. One of the biggest benefits for the buyer (if goes with owner financing) is not having to pay the costs associated with conventional loans. Points, origination fees, underwriting charges, appraisal, credit reports, title insurance and other fees charged by conventional lenders can amount to thousands of dollars at closing. The buyer is free from these with an owner-carry installment sale. If a buyer is otherwise approved for a loan,but the closing costs are too much for him/her, owner financing eliminates this objection.

4. If buyer cannot get approved for a loan due to credit score, loan,owner financing is a way to make the deal happen. As a seller, you might be able to be more firm in your terms. There are buyers who are willing to pay a premium for non-qualifying financing Owner financing may also give the buyer a chance to improve his credit rating by owning a home and making payments timely.

5. If purchase is done entirely with owner financing,then settlement date is not held up buy lender financing.

6. If as a home seller,you are many other homes on the market and/or there are homes that buyers might otherwise find more appealing,owner financing might improve the home's appeal since buyers won't have to go through the traditional loan process.

7. As FHA loans have become more popular,with nearly 1/3 of buyers in America using them (August 2010 article in Marketplace),if seller does owner financing,then buyer's loan isn't subject to FHA doing their own inspection of the home for funding purposes of the loan. Some transactions fall apart because FHA lenders won't fund loans based on their home inspections, unless seller or buyer agrees to make repairs. And after the repairs are made,the inspector comes back to approve the quality of the repair. Owner financing eliminates this issue (issues may come up with buyer's home inspector and the FHA inspection is another hurdle).

8. Some transactions fall apart because of the home not appraising. As a seller,if you offer owner financing,one term can be to eliminate the appraisal contingency since you don't need it in order to fund the buyer's loan. Buyer can ask for appraisal contingency,but since seller is loan holder,he/she is able to fund loan so there is no appraisal contingency. Buyer can either agree or disagree to this contingency. If buyer cannot otherwise get a traditional loan,needs owner financing and loves the home,then he or she should give a lot of pause before telling owner that sale is subject to an appraisal. Seller may acquiesce or that could be a deal breaker.

Through traditional mortgages,the lender sends out an appraisor and if in appraisor's professional opinion the home isn't worth the sale price,then the loan won't be approved for the full amount of the sale price and either the seller has to reduce the sale price to the loan price,the buyer come up with the balance in cash to cover the difference between the loan amount and sale price or the buyer and seller have to agree to a compromise. Otherwise the deal falls apart.

Some negatives about owner financing

1. Seller responsible (him/herself or needs to hire somebody) to keep records of monthly payments and buyer's loan balance. An amortization schedule helps to accurately calculate the interest, principal, and remaining balance due. There are also annual 1098 mortgage interest statements to prepare. Many sellers decide to leave all this to a professional and make use of an outside servicer.

2. The duration of the loan. Does seller want to be collecting buyer's loan for perhaps 30 years or does he want to be free and clear of his/her former home in every possible manner? Seller could offer a shorter loan term with a balloon payment at the end.

3. Seller has to become a "collection agency" if buyer not paying loans on time. As the lender, sellers also have to worry if the buyer maintains the property, lets the property insurance lapse, fails to keeps the real estate taxes current, or violates any other terms of the financing arrangement. If seller no longer wants to be the lender and/or needs the money from the entire loan,then he/she has to sell the loan to an investor.


4. If buyer isn't paying loan,seller may need to initiate foreclosure proceedings. One risk for a lender when a home goes to foreclosure is that the property might be worth less than the buyer's outstanding balance.

5. If seller sells home with owner financing and seller also has outstanding loans of his/her own,buyer has to be concerned about seller paying off his/her bills.

There are many things to consider with real estate trasactions involving owner financing and I am sure that I haven't touched on everything.

Before agreeing to owner financing, seller and buyer should consult separate legal counsel in their state. .

If I can be of service in helping you and yours in selling or buying a home,please let me know. I always have time for and greatly appreciate your referrals.


Adam

Cell: (301)943-4370

adambashein@mris.com
(301)718-4100
www.basheinhomes.info

Adam Bashein
Licensed in MD & DC
Weichert Realtors

Owner financing in real estate transactions

Also known as seller financing, owner financing is growing in popularity in today's economy. With the credit markets slowing down and people finding it harder and harder to borrow, owner financing is looking better and better as an alternative to traditional financing. Owner financing is when the seller of the property basically agrees to take payments rather than a lump sum if you aren't buying the home for cash. A seller can lend buyer money for the entire purchase or seller can offer owner financing as a second mortgage if buyer isn't approved for the sale price and both the buyer and seller are otherwise in agreement on the purchase price.

The best case scenario for a seller to offer owner financing is if he/she owns the home free and clear. In other words,owner doesn't need the proceeds from the sale in order to pay off his or her mortgage. Furthermore, the seller does not need the proceeds from the sale of the home for his/her new home

The terms of the purchase and loan need to be right for both parties. The interest rate, duration and repayment structure need to be acceptable for both parties. This usually requires a good deal of negotiation.

Some of the benefits for a buyer and seller to consider if you are entertaining the idea of owner financing:

1. You don't have to get traditional financing if owner finances entire purchase. If seller is willing to finance a portion of the loan, this might help you lower your down payment or help you qualify for traditional financing, but won't completely eliminate traditional financing.

2. Interest rate of loan is independent of market rate. It can be a negotiating tool for buyer and seller to make the deal happen. A seller may offer owner financing and may ask for a higher rate because he/she is taking on a financial risk (that a lender typically would). On the other hand,a seller might offer a lower interest rate if he or she is a motivated seller and buyer is reluctant to go forward with purchase because buyer either thinks mortgage rate is too high and/or buyer cannot afford monthly payments with the market interest rate.

3. As a seller,if you are financially comfortable with owner financing,you could be opening your home to a wider pool of home buyers. One of the biggest benefits for the buyer (if goes with owner financing) is not having to pay the costs associated with conventional loans. Points, origination fees, underwriting charges, appraisal, credit reports, title insurance and other fees charged by conventional lenders can amount to thousands of dollars at closing. The buyer is free from these with an owner-carry installment sale. If a buyer is otherwise approved for a loan,but the closing costs are too much for him/her, owner financing eliminates this objection.

4. If buyer cannot get approved for a loan due to credit score, loan,owner financing is a way to make the deal happen. As a seller, you might be able to be more firm in your terms. There are buyers who are willing to pay a premium for non-qualifying financing Owner financing may also give the buyer a chance to improve his credit rating by owning a home and making payments timely.

5. If purchase is done entirely with owner financing,then settlement date is not held up buy lender financing.

6. If as a home seller,you are many other homes on the market and/or there are homes that buyers might otherwise find more appealing,owner financing might improve the home's appeal since buyers won't have to go through the traditional loan process.

7. As FHA loans have become more popular,with nearly 1/3 of buyers in America using them (August 2010 article in Marketplace),if seller does owner financing,then buyer's loan isn't subject to FHA doing their own inspection of the home for funding purposes of the loan. Some transactions fall apart because FHA lenders won't fund loans based on their home inspections, unless seller or buyer agrees to make repairs. And after the repairs are made,the inspector comes back to approve the quality of the repair. Owner financing eliminates this issue (issues may come up with buyer's home inspector and the FHA inspection is another hurdle).

8. Some transactions fall apart because of the home not appraising. As a seller,if you offer owner financing,one term can be to eliminate the appraisal contingency since you don't need it in order to fund the buyer's loan. Buyer can ask for appraisal contingency,but since seller is loan holder,he/she is able to fund loan so there is no appraisal contingency. Buyer can either agree or disagree to this contingency. If buyer cannot otherwise get a traditional loan,needs owner financing and loves the home,then he or she should give a lot of pause before telling owner that sale is subject to an appraisal. Seller may acquiesce or that could be a deal breaker.

Through traditional mortgages,the lender sends out an appraisor and if in appraisor's professional opinion the home isn't worth the sale price,then the loan won't be approved for the full amount of the sale price and either the seller has to reduce the sale price to the loan price,the buyer come up with the balance in cash to cover the difference between the loan amount and sale price or the buyer and seller have to agree to a compromise. Otherwise the deal falls apart.

Some negatives about owner financing

1. Seller responsible (him/herself or needs to hire somebody) to keep records of monthly payments and buyer's loan balance. An amortization schedule helps to accurately calculate the interest, principal, and remaining balance due. There are also annual 1098 mortgage interest statements to prepare. Many sellers decide to leave all this to a professional and make use of an outside servicer.

2. The duration of the loan. Does seller want to be collecting buyer's loan for perhaps 30 years or does he want to be free and clear of his/her former home in every possible manner? Seller could offer a shorter loan term with a balloon payment at the end.

3. Seller has to become a "collection agency" if buyer not paying loans on time. As the lender, sellers also have to worry if the buyer maintains the property, lets the property insurance lapse, fails to keeps the real estate taxes current, or violates any other terms of the financing arrangement. If seller no longer wants to be the lender and/or needs the money from the entire loan,then he/she has to sell the loan to an investor.


4. If buyer isn't paying loan,seller may need to initiate foreclosure proceedings. One risk for a lender when a home goes to foreclosure is that the property might be worth less than the buyer's outstanding balance.

5. If seller sells home with owner financing and seller also has outstanding loans of his/her own,buyer has to be concerned about seller paying off his/her bills.

There are many things to consider with real estate trasactions involving owner financing and I am sure that I haven't touched on everything.

Before agreeing to owner financing, seller and buyer should consult separate legal counsel in their state. .

If I can be of service in helping you and yours in selling or buying a home,please let me know. I always have time for and greatly appreciate your referrals.


Adam


Cell: 301-943-4370

adambashein@mris.com
301-718-4100
www.basheinhomes.info

Adam Bashein

Licensed in MD & DC

Weichert Realtors

Cork and laminate flooring

Thinking of installing new floors? Cork flooring is "in" and supposed to good for people with back problems. Cork flooring is resistant to the mold and mildew commonly associated with other types of flooring. It does tend to cost more money than other types of flooring. As far as cleaning,a damp rag is suggested,but not a mop. Cork offers an unusual appearance, warm surface, and can enhance most decor, but it can be permanently damaged by heavy objects and sustain discoloration if consistently exposed to strong sunlight. Read warranty on the flooring.

A tip if you own a home or are looking to buy a home and the wood laminate floor feels like it might be too soft/have too much give. Ask your home inspector to check the flooring for moisture and to also check for the quality of the plywood underneath the flooring.

Part of my service to you is referring you to contractors for home improvements, whether the are for you to enjoy while you live there, to enhance your home before selling it or you want to get the cost for a home improvement on a home yhou ar considering buyig. I am here whenever you or soembody you know needs me. I appreciate and always have time for your referrals.

Adam
adambashein@mris.com
www.basheinhomes.info
CELL: 301-943-4370

Adam Bashein
301-718-4100
7821 Tuckerman Lane
Potomac,MD 20854

Counting days on home sale contingencies in real estate contract

One portion of the sales contract discusses "computation of days". How days are counted by the contract and the parties for contingencies? Know how days are counted when writing a contract and if it is a short sale ask how the seller's lender counts days it needs for reviewing offers. Some contracts consider the end of the 1 day to be at a certain time of the day (not midnight).

When you have signed a sales contract take out your calender,day timer,open outlook or whatever program online you use,count the days for each contingency and mark them down so you don't forget/overlook the date. Time flies, but don't let it pass you by.
If you are ever unsure or confused about contingency dates,ask your realtor.

Thinking of listing your home for sale or looking to buy a home?
I will walk you every way through the contract. I am here to help.
And, I always have time for your referrals,

Adam
adambashein@mris.com
www.basheinhomes.info
CELL: 301-943-4370

Adam Bashein
Licensed in MD & DC
301-718-4100
7821 Tuckerman Lane
Potomac,MD 20854

Home seller strategy if facing potential short sale and have 2 mortgages

Are you in a situation where you may need to sell your home because you can no longer afford to pay the mortgage?

Do you have a first and second trust?

Before selling your home,find out about modifying your loan(s)if you don't want to move.

If you want to move and/or can't modify your loan, consider talking to the lender who holds your second mortgage (if you have a first and second trust) and talk about paying what you owe them.

It can take a while to hear back from a lender to approve the sale of your home when you are asking the lender to forgive the balance on your mortgage (if your proceeds from the sale won't enable you to pay off the mortgage and you are asking the lender to forgive the balance). When a seller has a first and second trust,it takes even more time because you are asking them both to accept losses, which neither wants to do.

Often the second loan is for a smaller amount of money and at a higher interest rate than the first loan. Some of the second lenders feel they should recover the entire loan or only have a minimal loss since the seller borrowed substantially less money from them. So they may hold up negotiations. Meanwhile, the first trust also wants to minimize their losses. so there is a tug of war between both lenders (it might be easier to negotiate if both loans are with the same bank,but it depends on the bank).

I am working on a contract now, where the seller engaged the second lender in conversations to pay off her loan prior to selling her home. The seller and second trust came to an agreement,so the seller is paying off the balance. We will now "only" need one lender to approve the sale. I applaud the seller for doing this and wanted to share this idea with you if you or someone you know is in a potential short sale situation and wants to increase the odds of a successful sales transacation.

As a potential seller in a short sale situation, make the best of a bad situation. In addition to making your home show well,talk to your lender and if you have a first and second mortgage,do everything you can to pay it off before selling your home. Some buyers are only interested in looking at short sales where the seller only has to get one lender to approve the purchase because they believe it will take less time for the sale to be approved and there may be more negotiating room on the buying side if only one lender has to approve the sale price and terms.

If you or somebody you know wants to talk about short sales or the market,let me know. I am here to help and am anywhere you want to be in Metro DC.

Adam
adambashein@mris.com
www.basheinhomes.info

CELL: 301-943-4370

Adam Bashein
Licensed in MD & DC
Weichert Realtors
301-718-4100
7821 Tuckerman Lane
Potomac, MD 20854

Is your home LEGALLY REGISTERED as a rental property?

This post was originally motivated by a real estate transaction that I am working on,where the home has a "basement apartment". The basement has a full kitchen,full bath,bedroom and a seperate entrance (you don't need to go upstairs to the "main level" of the home in order to come and go from the house.

If you are looking for a home to buy and one of the homes has a basement apartment tell your lender (if you are getting a mortgage)because lenders will consider your credit,your income and POTENTIAL INCOME (if the home you want to buy has a basement area that can be rented out) and enable you to take out a larger loan. This helps if you aren't approved for a large enough loan to purchase the home (without the potential rental income). Most importantly,check that the basement apartment is registered in your area as a legal rental property. As a home owner,if you are considering selling and have a basement apartment--even if never used as a rental property,I suggest getting it legally registered so more potential home buyers can afford your home.

The second motivation for this post was the 11 O'Clock news on WRC Channel 4 last night. They were reporting from Georgetown,a suburb in Washington,DC. Apparently local residents are unhappy that homes are being used as rental facilities for students at Georgetown University,so some owners are knocking on doors of their neighbors to see if the homes are "owner occupied" or not. The neighbors are taking down notes to check if the homes that are being rented out are registered as legal rental units in Washington, DC. IF the homes are not legally registered,the owners of the homes do face legal consequences. Homes that are registered as legal rental properties are subject to inspection by the local housing authority. I know first hand as my rental property was inspected a few weeks after I registered as a legal rental unit.

So, I want to remind anybody and everybody,in Washington,DC, Maryland and around the globe to make sure if you are a landlord..whether you are renting out your entire home,a room(s) or basmement apartment,that there are legal consequences. You may be subject to an inspection from your local housing authority and an inspection from your neighbors.

If you or anyone you know would like to discuss this topic or discuss the real estate market,give me a call or send me a message. I always have time for your referrals.

Life is good!



Adam
Cell: 301-943-4370

adambashein@mris.com

www.basheinhomes.info

Adam Bashein

Licensed in MD & DC

Weichert Realtors

7821 Tuckerman Lane

Potomac, MD 20854

301-718-4100 ext. 132

Consider buying a home for its potential? Maybe you should.

A new listing in the back of Kemp Mill, a subdivision in Silver Spring Maryland, on Bluff Terrace near the park. Below is a link for the listing Do you know anybody interested in living in Silver Spring, Maryland? Seller did a nice renovation job on the home in just over 2 months after buying the home for a steal-it was cash though.

Please visit my website to see the listing and for a general home search:

http://www.adambasheinsellshomes.com/MD/SILVER-SPRING/20902/homes-for-sale/100-BLUFF-TER-55629767

Even if it isn't the right home for you,give thought to buying a home for its potential
if it is in an area you like and has good bones. There are loans designed for homes that need renovation like the FHA 203k loan. Part of my full service with clients is introducing them to contractors if they see a home that needs work,but aren't sure what the cost of the work will be and if they will in the end have saved any money by buying a home that needs renovation/updating,verses a home that is "in perfect condition".

The other benefit of buying a home that needs renovation is that the renovation will be based on your taste,wants and needs. Some sellers' homes may be beautifully renovated from head to toe,but you may have a different taste than them.

On the other hand,if you buy a fully renovated home,you don't need to invest the time in meeting with contractors,calculcating the costs of repairs and different options. Some renovation work can be done while you live in the home,but some renovation work is substantial to the point where you cannot move into the home until at least until certain work is done. So,you might need to calculate the cost of living at your current residence a couple of additional months after your new home purchase. That being said, there may be more buyers out there looking at fully renovated homes,which brings up their value. You need to weigh the situation.

If you or someone you know is thinking of buying a home in Metro DC,please let me know. I always have time for and greatly appreciate your referrals.

Life is good!

Adam


Cell: 301-943-4370

adambashein@mris.com

www.basheinhomes.info

Adam Bashein

Licensed in MD & DC

Weichert Realtors

301-718-4100 ext. 132