Partial Owner Carried Contract. Someone is interested in buying my condo and has asked if I would

1 ANSWERS

1. amomipais82
   

   HI,
   hink this FSBO might be thinking you would come up with a $300,000 down payment to him.  And, if you can afford a $300,000 down payment from money you have in savings, there should be a ton of lenders in Oregon who will finance you.  You would basically be going into a loan with a 50% equity in the property if you purchase for $600,000 and make a down payment of $300,000 to the FSBO (hereafter referred to as Seller).
   
   If you do not have $300,000 in savings and are considering a $300,000 lender loan – with the Seller financing the balance – you would need to check with different lenders to see if they would approve this.
   
   To pay an additional $90,000 for a property to obtain Seller financing is pretty steep, in my opinion, and this raises a red flag for me.  Of course, you could always try to negotiate this amount with the Seller.
   
   With Seller financing, the first thing you want to verify is whether or not there is any outstanding mortgage on the property.  If there is an outstanding mortgage and it is NOT assumable (and the Seller is thinking of continuing to make payments on this non-assumable mortgage), this could be a snake pit for you.  What do you think would happen if the Seller defaulted on his mortgage, or better yet, did not make payments to his lender when you paid him?
   
   If there is no current mortgage on the property, then the above is no concern to you.  You would, however, want to have your own attorney review any note and mortgage you enter into with a Seller to make sure there is no language therein that would negatively impact you.
   
   When a Seller finances all or a portion of his equity in a property, a purchaser can generally eliminate closing costs that a lender would charge.  
   
   Closing costs charged by a lender might be a one percent fee on the LOAN amount (NOT the sales price), and this is called an origination fee.  In addition, they would require lender’s title insurance (and you should, likewise, cover YOURSELF with owner’s title coverage (whether purchasing through a lender OR the Seller); a flood cert fee ($30 in my area); appraisal fee ($350-$450 in my area); credit app ($30); and a survey ($350 - $1,500 or higher, depending on the acreage involved).  Some lenders are no longer requiring a new survey, but in the absence of a recent survey provided by a Seller (within 18 months), I STRONGLY recommend a new survey – whether you finance through a lender OR a Seller.
   
   Other lender charges could be an underwriting fee ($400 in my area); doc prep ($200-$400 in my area); and possibly others.  Generally speaking, these “other” charges are referred to as JUNK fees -- fees that lenders add on for a higher profit.  For the most part, all lenders do this, and it’s a question of paying these fees or a higher interest rate over the life of the loan.
   
   As you can see, when you add up all the above amounts, it’s MUCH less than the $90,000 amount tacked onto the sales price by the Seller to carry back a portion of his equity for his owner financing.
   
   With a lender involved, there will be an appraisal required.  Likewise, you should stipulate in any Contract you enter into with a Seller providing the financing that the Contract is contingent upon the property appraising for no less than the sales price, and that YOU choose the appraiser.
   
   The reason most PURCHASERS take advantage of Seller financing is to save lender closing costs, or possibly they have bad credit and are unable to obtain a loan from a lender.
   
   The reason most SELLERS offer owner financing is that they might have had a hard time selling their property, either because of the price, location, condition of the property, or a combination or all the preceding.  So, in answer to your question about the value of this property, it IS possible that the Seller could have it overpriced.
   
   If a Seller offers a rate substantially below that of what a lender might charge, this could possibly be a saving for you, but you have to consider the entire picture and all your costs/charges.
   
   Whether you end up purchasing this property through a lender or with the Seller’s financing, you need to have inspections performed by reputable, licensed inspectors.  If there are problems with the inspections, the Seller should correct.  Should the Seller refuse to correct defects (and you are usually looking for major defects and/or defects you were previously unaware of), your Contract should have language in it giving you an out in this situation.  
   
   Don’t overlook requiring clear heating/ac letters and also a letter covering water/moisture damage and damage by wood-destroying insects (termites, carpenter ants, wood-boring beetles, etc.).

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