Las Vegas money for Sellers

If you have great credit, you can still get a good home lone without any trouble. But, the 100 percent down loans are almost gone. FHA demands 3.5 percent down and conventional loans are 3-20 percent down. It is time to trot out Owner Financing again.

Owner Financing falls into two categories. First and second mortgages.

Owner Financing with a first mortgage usually requires a down payment of at least ten percent to cover costs. Most sellers want to take a trip, buy a car, or do something that costs money. Expect to come up with at least 15 percent and more likely 20 to 30 percent down. Sellers want to know if they must repossess the house, he will be able to fix any damage and be able to price the home a bit more aggressively if he has to resell it later.

Three other aspects regularly affect Owner Financing.

Expect a "balloon" payment. The loan is written with monthly payments based on a 30 year pay off. BUT, in 5 years, 10 years or some other designated time, you will be expected to pay off the entire loan.

Expect to pay higher interest. If the going rate is 6% then do not be surprised the seller wants 7.5 to 8.5 percent. You do save a lot of money on loan costs.

Expect and demand the loan be held by an escrow company. This is one of the best consumer products out there. The minimal costs of collecting, disbursing and keeping track of the monies is truly wonderful and safe for all concerned. I did one of these between parents and an adult child. I insisted they do this. Only way to go.

What Dangers lurk out there in the world of Owner Financing?

Two common ways of transferring property are "Real Estate Contracts" or "Deeds of Trust." The actual ins and outs are legal and beyond my understanding or licensing capabilities to explain. The old timers around here who LOVE to provide owner financing favor the Real Estate Contract method.

Make sure you can pay it off in full anytime without penalty. I saw one where the buyer had to pay 13,000 dollars in penalties to pre-pay 25,000 dollars of principal. It was all the interest due until the end of the loan.

Sellers, make sure the loan has a "Due on Sale" clause. You may want to let another buyer assume the loan, but, you do not want that to be the default.

Don't just set down with a good old boy and write it on a napkin--either sellers or buyers. Take the napkin to a real estate agent or real estate attorney and make sure it is done right. Better arguments before than after for everyone!

"Las Vegas Money for Sellers."
Sellers, if you take a SECOND mortgage to help a buyer qualify for a first mortgage down payment. Then, the buyer defaults and the home is repossessed, more than likely, there will not be enough money to pay anything against the second mortgage. That means that money just goes away, kinda like a mutual fund. You may be able to go after the buyer to try to recover it, but, it is probably not worth it (call a lawyer).

Therefore, a second mortgage is Las Vegas Money. If you can say "Thank you God" for every Penny you got paid by the first mortgage, and for every penny you get in monthly payments and if it repos and you do not get one payment on the second mortgage and can still say thank you God for what you got, do it because Second mortgages are just Las Vegas Money.