Question about owner financing

[mrstw]

I don't know if I'm in the right place, but would appreciate some advice.

Currently leasing a house, second-year term, only a couple of months after signing, owner says they intend on selling and offered us this "really good" deal:

Sale price $124K (tax appraisal $116)
owner finance - we pay them, they pay their bank
8%
zero down
payments would include p&i, taxes and insurance - just under $1300
renovated HUD home

She says nothing will be reported to a credit agency, so we'll accumulate no credit payment history (our credit is not bad, but not good) and they cannot give anything to the city - they will just have a legal contract that "says" we are buying the house.

Neighborhood is typical suburban, house to one side is a rental with no guarantee of who'll move in, neighbors from hell are on the other side, rest of neighborhood clean and quiet; countless homes for sale throughout city.

We asked that they wait until our current lease runs out and then we'll decide, and they are balking; said they will get a realtor in (AND said we need to be out of the house while the realtor is there to look around) and put it on the market if we don't buy. Our lease (amended from last year's) now states that if they sell, we can be given 30 days notice to vacate.  

QUESTION:
Bad deal, right?
Any thoughts on why they "might" be so gung-ho to sell right away? We feel they absolutely intended to sell when we were signing the new lease, but just got us into the lease so they'd secure monthly payments. Otherwise, the house might have remained empty for awhile.

I know absolutely nothing about all this and would like someone to explain in clear terms.
Thank you.

[tedjr]

How much is the rent. How bad do you want to own your own home. The price of this is at market value. It is not a bargain. The downpayment is the great part of the deal. If the payment will be a lot higher than the rent and you can not afford more I may consider renting another house for a while. As long as the market is still down and it is a lot cheaper to rent then I may not buy. There are still other factors to consider in buying a home vrs renting. Can you save money on your taxes by taking the interest deductions. This may equal out the payment difference over the entire year. It is not a really easy question to answer.

One reason I can think of that they may be putting pressure on you is to create a owner financed note and sell it  at a discount perhaps to raise money for something else. If you have some cash to put down they may discount the price some. The 8% interest rate is not way out of line for owner financed with 0 down. You may tell them that you see rates at 5.5 % or so and ask for that rate. They may so no but go for 7% or even 6.5%. That would make it a little less each month too. If you do buy find a way to make sure they are paying the loan they owe. Ask to pay it directly or get a 800 number where you can check to make sure. Some people get in trouble and first thing you know you are being evicted by the sheriff unless you are in Georgetown then he may ask you to party. Let me know if i can help.

Happy Hollidays and Thank you,

Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas  78737

512-301-9171 home
512-587-6177 mobile

[JoanAlyce1]

Wow, the fact that they put that you could be given 30 days notice if they sold the place really does indicate that they planned on selling.  They must have some sort of personal situation to resolve, but I would never do that to a tenant !

Don't know your area, but maybe if you give us more details one of the investors here could get you a better deal.  

Good Luck

[mrstw]

ted - Thanks for your feedback. Our rent is a couple of dollars over what the monthly mortgage payment would be. We don't understand much about the tax situation regarding home ownership (we really are woefully "uninformed" about real estate matters, as we've always rented). The will go with 8% with zero down or 7.5% with $2500 down.

Joan - Thanks for the input. Yep, you're right about their intention to sell. We very much feel that we were scammed. The lease was different than the previous and as we read everything before signing, we were aware of the purchase/30 day notice clause, but really had NO idea they would sell. They kept talking about what great renters we are and how happy they were to have us in the house and so we signed the lease in good faith. Then, out of the blue she tells us they are selling all four of their rent houses. Said they had "too much on their plate" and no time for them and since they had enough equity they were going to sell - thing is, we NEVER require anything from them, we make all minor repairs, etc. And oh by the way, they've sold their own house because they're building a big fancy new one. We really feel duped. She presented us with this "offer" and said they're offering this really good deal because we're "so great" -  :roll:

Went through two layoffs a few years ago and our credit is reflective of those rough times - we've just not been able to clear the debts. Now, income is far greater, but it's primarily a matter of just staying current with necessary bills and rent, etc. We do intend on clearing the reports, but it will take some time and we've gotten conflicting information about the best ways to clear the reports. (None of the debts are credit card or frivolous spending related). So, now we must decide whether to go with this owner financing or rent somewhere else which kind of makes us cringe - another landlord, deposits, moving expense, etc. to possibly get into a worse situation - by that I mean that although I don't like what these owners are doing now, they have been good landlords. Don't know what to do.

Both of you have a nice day!

[mrloexpertcruz]

You are going to be paying rent anyways, why not just stay there where you are established and continue to pay rent because regardless of how it works out, it's all the same. The only thing you have to lose is your credit if you can't keep up your payments, but you said your credit isn't all that good anyways. If the neighborhood isn't somewhere you would want to live from here on out then you might want to try the following:
Ask for another year lease with the option to buy at the end of the lease. Tell them you would rather try to get your own mortgage and you will need time in order to be approved for this loan. Or go ahead and buy and if you find that you can't make the payments anymore then simply sell it with a lease purchase yourself. Here on this site we can help you with this type of deal.
By the way, where are you located?
Cruz

[Matt_In_Texas]

mrstw,

Be sure and visit my website, addres is in my signature line.  There is a lot of free stuff there to help you clean up your credit .......

[mrstw]

Hi cruz - well, they said none of our payments will be credited to any payment history - they won't report to a credit bureau. They won't go another lease at all. Just trying to decide if it's a good deal. The payment will include taxes and insurance which they'll pay for us. Lots of questions that need answering. We're going to talk to them more.

[mrstw]

Hi Matt -
Thanks for the info - we'll check out your website.

[JoanAlyce1]

An owner financing a property really has no way to report it to the credit agencies.  You can keep your cancelled checks showing payments on time as well as get a letter from them stating you have paid on time.  this will help some when you try to get a loan in your name.

I think the key here is how much do you like this house ?  If it's what you want and you are happy with the price and terms, then go for it.  If not, there are a lot of properties out there right now and a lot of ways to buy no money, no credit.

Good Luck !

[mrstw]

Hi everyone - how are you?

I have an UPDATE on my original post, if you'd care to read and offer any further input:

This is what we've learned from the owner:

Although they originally said they'd owner finance OR we could get financing, they now say that they are not interested in selling if we get outside financing right now - they want to hold the note for a minimum of FIVE years, and then they will "introduce" us to their loan officer at that time for financing, if we'd like. There will be a 3% penalty clause if the note is paid within the five year period and the title will be transferred into our name only when the note is paid in full.

They will provide a Seller's Disclosure, 1 year Home Warranty that we can renew, and at the title company, we will have to fill out a W-9 form and they will file on their taxes that we are paying to own and then send us an interest statement at the end of the year.

I asked if she would provide the legal document so that we can show it to an attorney and she said sorry, no, each contract is drawn to specification as agreed upon.

Now . . . In the purchase plan she gave to us, the loan amount is for the purchase price PLUS one year's taxes - and the monthly payment is for p&i plus insurance PLUS the year's taxes divided out monthly.

Is it legal for them to include the taxes in the loan amount and add an amount each month for taxes? Wouldn't we be paying taxes twice?

Add to this, we asked for the square footage of each room and she says they "don't have that information"   - I should think that an owner would have that information, particularly since they themselves did the remodel on the house in the first place (it was a HUD home, and was very nicely renovated).

Well, thought I'd post this for feedback.

[JoeKaiser]

The owner is trying, really really trying, to get you into this house with the least amount of hassle for you.  So, you get to own the thing for virtually the same amount you're paying in rent.

That's not a bad deal . . . that's a GREAT deal!

No, you won't be paying the property taxes twice, and no, remembering the square footage of homes owned is not high on the list of what's important in a real estate investor's toolbox. People who own lots of property have better things to remember than the square footage of all their houses. I have houses I couldn't tell you how many bedrooms, much less the square footage.

Look, they're structuring it so you get all the usual benefits, and they're making it as easy as possible for you to say "yes."

Buy the damn thing ;-) and you're now a homeowner. You fool around with it much longer and poof, the opportunity will be gone.

Joe