Home Buying in Albany>Question Details

Vee, Home Buyer in Albany, GA

I want to buy the duplex that I currently live in,The owner is willing to finance 100%Please explain

Asked by Vee, Albany, GA Wed May 28, 2008

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Jeffrey Schnabel’s answer
Vee,

Since you're living in the duplex, you have a big advantage. You know a lot about the neighborhood, and you know a lot about the duplex. But, be careful of what looks like a gift. 100% financing simply means that the owner is willing to sell the duplex to you AND provide the financing for it as well. Kind of like being a bank, but in your case, the owner is both the seller and the bank.

You need to know what the duplex is worth, and right now, without any other source of info, you don't. Let the owner tell you the terms under which they are willing to sell you the place, including the purchase price, the interest rate (try to get a fixed rate), the length of the loan, and any other terms. Don't negotiate at this point, you want to learn as much about the owner's position as possible without being confrontational.

If what the seller has offered seems like it's in the ball park, then you need to take the next step to validate their assumptions. Consider getting a licensed appraiser to appraise the property and tell you what it's worth. If that number is noticeably different than what the owner has proposed, then you need to solve the difference.

Note that even if there is a difference, you need to consider the benefit of owner financing and what impact that has on your situation. Owner financing with a low fixed rate and virtually no closing costs or lender fees, has value.

If you get to the stage that things seem like they could work out, then as Holli, indicated, now you need to go get a real estate attorney to help with your side of the transaction. Do not under any circumstances, enter into a contract to purchase with an owner doing financing, without having a real estate attorney to represent you.

Good luck,

Jeffrey
1 vote Thank Flag Link Wed May 28, 2008
Firstly, you already live in the duplex, and paying rent, you must have good rent paying record in order for your landlord willing to finance 100% to you, knowing you should be no problem to pay.

Secondly, why not just collecting the rent? but selling it to the tenant? It often happened when the landlord gets old and want to retire. The difference between rent and own is that after "sold and closed", YOU, as the owner will have to take care all the repair and maintenance of the duplex.

Thirdly, the landlord also has the tax advantage if you only live there less that 3 years of past 5 years, assuming the landlord living there before. So, the landlord has to sell now in order to realize the capital gain that President Bush changed this law to allow NO income tax for the gain. Without a quick sale, it may not be such tax advantage to your landlord.

Knowing all the financial advantage of your landlord taking this action, I believe your landlord should be selling you the duplex at good price, especially, there is no 6% commission. So, it is a win win situation.

What are advantage on your side? As a tenant, if your landlord decided to sell to catch the tax advantage that may be gone after President Bush left White House, you may have to MOVE to other place, which could cost you moving cost and another year for your family to adapt into the new neighborhood.

Also, the rent is higher now due to there are great demand of housing while many could not buy for credit tight. That is to say, if you move to next rental, you may end up paying higher rent for similar home.

Besides, who are going to give 100% mortgage these days? So, if you can get one, it is great!

Now, about the mortgage rate, try to see if your landlord can give you highest CD rate he can find, e.g. 5 year CD about 5%. Why? in your landlord's mind, if s/he sold the house and put money into CD, that's the highest can get, so why not lend to you? Do NOT use "mortgage rate" such as 6.5% since that also include the profit of bank and all sort of marketing cost and mark up, and there is no such cost of your landlord.

Then, because your rate is LOWER than market rate and your landlord had no lost, same thing as you do not pay commission, nor your landlord pay, ...etc, you should try to see if you can work out to pay off your mortgage shorter than 30 years.

A good rule of thumb is the monthly payment about the same as your monthly rent. So that no need to worry affordability, and you may end up pay off in 10 years rather than 30 years. i.e. own the home free and clear in much shorter time.

Other advantage is that you do NOT need to pay mortgage points fee, mark up ...etc.

There is one more advantage of your landlord that such arrangment is like NO MORE VACANCY when change tenants; that is to say, the duplex will be fully utilized and max the gain.

This is also the gain for tenant since vacancy cost often built up to next rent, and to you, you will see a "never increase" monthly payment than rent which may increase every year.

Another benefit for you is that your monthly mortgage payment can deduct your income tax, so, you may end up paying less each month.

Again, this is a win win situation, so do not let go the chance...
0 votes Thank Flag Link Tue Sep 23, 2008
Vee,
When you buy a property, unless you pay cash, you borrow the money from a bank and they charge you interest. The interes is income, money making money. In this case your landlord is willing to lend you the money and he will make the income from the interest rate he charges on top of the principle he gets as the purchase price.
Talk to a mortgage broker, a bank where you do business to verify the value of the interest reate and terms of the loan. Talk to a real estate agent to verify the value of the home and have a lawyer draw up the neccessary documents and advise you.
0 votes Thank Flag Link Thu May 29, 2008
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
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Hello Vee, the owner financing is a good thing for you. You and the owner need to agree on a market value - fair price for the house. For your safety, have the owner get some inspections done, like on the roof, the heater, the electricity, and a general and termite inspection. Then you will know what you are taking on in this house. A fair amount for you to pay for the mortgage is about 6% - 6 1/2%. You save alot of money having the owner finance the mortgage. Call me if I can be of any help to you - no charge, no obligation. All the best, Liz
0 votes Thank Flag Link Thu May 29, 2008
Is he offering you a lease option or rent to own policy? Whatever the choice is, get it in writing and speak with an attorney.
0 votes Thank Flag Link Wed May 28, 2008
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