Interest rate help! Owner financing property?

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Interest rate help! Owner financing property?
The owner is willing to finance 100% on a $ 200,000 property.
If he were to refinance at at 6% (ideally) his payment would be around $ 1,200 a month.Now lets just say he also charges me 6% on his loan (interest for him) does that mean i would owe him $ 2,400 a month? ( 1,200 in interest and 1,200 for his mortgage payment) ? would 6% be a fair rate to him? or does the rate usually tend to be less in this type of deal (such as lower then 6%) any help would be appreciated.I’d like to know the details before i propose such a deal,and or contact a real estate attorney to draw it all up for us in aggreement
Also I would be spreading out the payments for 30 years.I just want to know what type of interest rate should i give to the owner for doing this for me? (holding the note)I hear i am supossed to give him an interest rate at current market values,and that it depends on my credit.6% would be the ideal rate for someone with good credit.I am just using that as an example though.The Q is,am i supposed to give him interest that must be ATLEAST 6%? or over

  1. Reply
    May 17, 2011 at 9:05 am

    Go use a mortgage calculator on one of many websites. Calculate the loan at 6% and again at 12%. His “profits” would be the difference between the two. You can review the amortization schedule to determine the impact on principle over time.

    Jerry Hobby

  2. Reply
    May 17, 2011 at 9:57 am

    you wouldn’t have to pay 2400 per month. How many years are you going to amortize the mortgage for. Also check interest around where you live. I am only paying 4.25 percent interest.

  3. Reply
    May 17, 2011 at 10:24 am

    he becomes the bank, and whatever his rate is has nothing to do with you. You will negotiate with him the rate. He will probably not share the rate he is at with you. If it should be 1200 and you are paying 2400 then that would mean he is screwing you. You need to talk to someone before making this decision, and I would not advise you to get that important of info from here…

  4. Reply
    Free Thinker
    May 17, 2011 at 10:43 am

    If someone is going to owner finance then he should own the house outright. It is not owner financing if he still has a mortgage on the property. You can rent while buying but as long as there is a mortgage in his name it may never be yours and names cannot change on the deed.
    To answer your question 6% is very fair and actually it is very reasonable because the rate in owner financing is usually a little higher because of the inconvenience to the seller. This sounds like a very dangerous scenario that you have presented. I would confer with an attorney at once!

  5. Reply
    May 17, 2011 at 11:30 am

    It’s a good idea to involve an attorney.

    If he owes a mortgage on the property, you are talking about doing something I believe is called a wrap around mortgage, which might not be legal any longer. If the title were to change, it could trigger a “due on sale” clause in his mortgage note – which your attorney should review. Essentially what this says is that he needs to pay off the existing mortgage when changing the title. Assuming he could do a wrap, and he borrowed $ 200K at 6%, it would be a wash for him, but he wouldn’t have to come up with mortgage payments anymore.

    If he owns the property outright, then he is not paying interest, because he isn’t borrowing any money. Then, if you were to be making payments to him, 6% 30 years amortized, you’d be paying him almost $ 1200/ mo for 30 years.

  6. Reply
    Expert Realtor
    May 17, 2011 at 12:11 pm

    Whoa!!!! Your figures make no sense.

    At 6% interest rate (which would be crazy for him to offer, because most banks are higher than that right now), your payments would be approx $ 1200…but that doesn’t include taxes and insurance you will have to carry on the property.

    Before you get yourself into a mess of hot water, you need to see a real estate attorney to draw up a note with an AMMORTIZATION schedule.

    This is critical…it states how much of your loan, each month, goes to principle vs interest.

    You need to see the attorney BEFORE you propose any deal, before you agree to something that will cost you the deal entirely.

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