how does an owner carry mortagage work

Rxnwl · #1 04/14/07, 10:23 AM

Im in a house I would be intrested in buying if the owner would carry the mortgage. I would like to pay the owner what Im paying in rent for the next 10 years, then finance it thru a bank. I would be responsible for all repairs during that time. Has anybody done this? How does it work? Would anybody advise this as a way to purchase a house?

pancho · #2 04/14/07, 10:30 AM

There are risks for both parties. Better to go for the bank financing now and skip all the risks.
You take the risk the owner will not have any problems during the 10 years that can result with a lein put on the property. The owner takes the risk you will not take care of the property.

Janis Sauncy · #3 04/14/07, 10:38 AM

I am buying my place on an "owner contract," and, so far, there have been no problems and I'm not anticipating any because we went through a title company. There were problems uncovered during the title search, such as the previous owner's deed to the place showed he had financed (and paid it off) through a company in Costa Rica, which the title company didn't "recognize." The owner had to do a "quiet title," which, I guess, was a posting in various publications. That took about three months. Then there were a couple of small liens and back taxes HE had to take care of before we could close. Closing went well, with, I suppose, all the appropriate t's crossed and i's dotted.

I did, however, (with his total agreement) assign the contract to a local bank for collection. They charged $100.00 for the processing (I paid it) and then charge a monthly $5.00 for the paperwork (which I also pay). I then make the payment to the bank, they record it and send the previous owner a check. In addition, they compute the interest and then send the appropriate statement to both the previous owner and myself for tax purposes.

So far, so good. If you do go with it, I definitely recommend "assigning" the collection to a third party.

Janis

Beeman · #4 04/14/07, 11:12 AM

I've bought a house and pieces of land with owner financing. Do everything just like you are going through a bank and make sure all is in writing and completely above board, if you need go to a lawyer.

NWoods_Hippie · #5 04/14/07, 11:14 AM

Sounds like a "Land Contract" to me, have you looked into that?

KindredSpirit · #6 04/14/07, 03:37 PM

If you are talking about what is referred to in many states as a Contract for Deed, there are many risks for you. You would have an interest in the property buy the owner will still be the titleholder of record. Therefore, if the owner dies, goes through a divorce, doesn't pay their taxes, etc.., those things will still attach to the property. If, on the other hand, the current owner is deeding the property to you and this is a seller finance that is a different story. Then you would go through the regular process of a sale but the seller would be your lender. IMHO, You still need to go through a title company and I would recommend an attorney.

Mike in Ohio · #7 04/14/07, 03:50 PM

You basically have two options (Assuming the seller is amenable):

1) Land contract. This is essentially a contract for you to make payments which will eventually (in part or in whiole) go towards a down payment to purchase. At that point you would get a deed and a regular mrotgage.

2) The seller carries a mortgage for you. In this case you would generally be making a downpayment of some sort and the balance would be carried by the seller for a certain term. A fairly common would be a balloon payment after 5-7 years but with payments till that point amortized on a 30 (or some other mutually agreeable number) year basis.

The first arrangement makes it easier for the buyer. The second makes it safer for the seller.

Mike

What_A_Life · #8 04/15/07, 09:24 AM

This is basicly how I have purchased my house.

When I found my house it was listed for sale & I talked it's owner in to a three year rent to buy contract. Basicly I was renting & had three years to get a mortage to buy the house or our deal was off. Well I wasn't able to get a mortage on my own & was able to get the owners to contract another year in the house this year I was responsible for all taxes & repairs. A few months into this I mentioned to the owners I wish I could just get a private mortage somewhere instead of trying to go through the banks. A week later they called me & said they had talked to their lawyer to see if it was legal for them to give me a private mortage & it was, so they did. Basicly we had all the legal paperwork done just like in a regular sale & filed it with the county/state. The house's title is in my name & I make monthly payments directly to the old owners. There is a mortage agreement & it was filed with the county/state along with the home's title. So I basicly now own my home & pay the same monthly as I was in rent, plus the home will be totally paid off in three years (sale price of house minus my rental deposit & a portion of my monthly rent paid plus 4 % interest).

I would say go for it. This has worked out well for me as I would not have been able to get a home without doing it this way. As long as everything is covered in the contract to protect you both & is filed with the government correctly it should be fine.

What_A_Life

tnhomestead · #9 04/15/07, 01:45 PM

Contract for deed can be dangerous, i Know of several people who lost all doing it -- including myself. See if the owner will take a mortgage on the property instead -- safer for you. Make sure its recorded and you do title insurance!

Junkmanme · #10 04/15/07, 02:06 PM

Go to a Bank. Set up an "escrow account " to receive and distribute payments and pay taxes, etc. Tell the Bank that you want notification of each transaction. This will help "Protect" both the Buyer and Seller.

I have transacted such as this many times having been involved with real estate transactions, in all capacities, for over 40 years.

Janis Sauncy · #11 04/15/07, 03:08 PM

Junkmanme:

That is exactly what I did. I get a monthly statement showing my payments received and date, interest paid, etc. I assume the seller gets something similar.

At the end of the year, we both get statements for tax purposes.

Well worth the $5.00 a month I pay, over the amount of my house/property payment.

Janis

**clovis** · #12 04/15/07, 10:11 PM

Reread what Kindred Spirit wrote. It is worth reading about 10X.

If you buy on land contract, you are renting until ownership. If they have an accident while drunk and lose a lawsuit, they can and will attach the house you are buying. It can be liened by a government agency if they do not pay the taxes on it. If they too have a mortgage, and quit paying, the house you are buying can be sold on the courthouse steps. There is simply too much risk for you.

I have been told that you want a lease to own. Don't really know why it is better, but Dave Ramsey suggests this over a land contract. Might check out his website.
Clove

Gercarson · #13 04/15/07, 10:42 PM

What_A_Life did it the correct way - make sure you use a lawyer - the seller becomes a mortgage holder - just like a bank or lending institution would be - there is NO difference. The house/property is recorded and you are as safe as you would be in any financial situation.
What_A_Life - congratulations!! Home paid for in three years - yahoo, way to go.