Are owner financing interest rates negotiable?

Hello-
So if I do a 5 yr owner finance and half way through I do 50% cash out with bank then bank takes 1st position? Since value is soo high compared to loan does this make it easy or does bank know you have 2nd with owner since it is recorded....

Hi ken,

"Since value is soo high compared to loan does this make it easy or does bank know you have 2nd with owner since it is recorded."

The bank will come to know if you have a second mortgage on the property. You cannot conceal this fact from them. In fact if you do, it could be considered as fraud and the bank will demand the whole amount of the mortgage from you. So, if you are looking to get a loan, you need to inform about them about the second mortgage.

ken, this is confusing. your owner financing is, presumably, a first mortgage...is that right?

if it's a first mortgage, no lender in the country is going to be willing to afford you a cash-out and keep them in that position. furthermore, a new mortgage does not automatically take first position just because it's referred to as a "first mortgage loan." if there's a mortgage currently on property, any subsequent borrowings are junior in lien position to that one.

your "bank" would absolutely require that you pay the existing owner-financed loan in full at the time of your refinance. furthermore, no self-respecting or reasonably sane individual would allow his lien to fall to second position in favor of a new lender.

I have a renter that has considered buying my house as owner finance. Today, I get $650 a month rent. I was asking $78,500 but am settling on $75,000. They want to put down $5,000 and finance $70,000. I have asked for 8% but they are wanting 6%. Should I try at least 7%.

Cindy, negotiating is a fine art, and settling in the middle is often the result. I take it that your buyers are not credit-worthy in the general sense, and that your financing is the best they can do. Interest rates are at all-time lows, and 6% is actually not a great rate in the overall scheme of things. Nevertheless, you have them over a barrel, and if you want to get 7% and they fall for it, you win. You can certainly try that rate, and if there's pushback, maybe you'll be willing to settle at a lower number. It's definitely a negotiable thing, and you happen to hold the upper hand.

I am looking at possibly purchasing a home from a friend using seller financing. I recently went through a bankruptcy and this would be my only option for buying a home. He has offered to sell us his home for $220,000 with no money down at a 5% interest rate for 40 years, but having to pay it off no earlier than 10 and no later than 15 years. Our concern is with the value of the home. I understand that due to my credit situation if I am going to do seller financing I will most likely be paying top appraisal price if not more for the home I am purchasing but what is too much: 110% of appriasal, 125% of appraisal? What should a buyer of seller financing expect to pay over the actual market value of a home?

The buyer shouldn't pay more than the actual market value of the home. You should always pay the actual market value of the property.

I agree...I don't see any reason why a non-qualified borrower would have to pay in excess of value for a home. There's certainly no legal requirement for such a ridiculous arrangement. The only kind of requirement of that nature that would make sense is if a crazed buyer chose to pay an exorbitant amount of money for an inferior valued home.

Then again, we overpay for stuff all the time, don't we? How else would all these coffee joints charge you $2 for a large coffee (oops...is that a "tall" I meant?).

Hello, I'm selling a small house and 1/2 acre for $65,000. Buyer wants to pay 20% down and owner finance with me for the remainder ($52,000) for 2 years, balloon payment at end. My Realtor suggests I charge 6% interest rate. What do you think? Thanks!

Hi Anne!

Welcome to forums!

You can inform the buyer about it and charge 6% interest rate. If the buyer can afford to pay the interest payments, he will go with it. If he can't, then he will negotiate with you for lower payments.

Feel free to ask if you've further queries.

Sussane

Anne, how much you charge for interest is really your choice. Have you determined that the borrower is a solid risk? Have you seen a credit report? Have you seen pay information that makes you comfortable that the person can pay you back? Pretend you're a real lender and look at this deal from that standpoint. You stand to lose a lot if you get into a bad deal, so you need to take all precautions.