Owner Financing

Is simply getting the owner / seller to agree to take the purchase price in payments, instead of one lump sum. The seller becomes the bank and finances the deal themselves. This can be accomplished in a variety of creative ways to make the deal work for you, and the seller.

  • Wrap around mortgage – is creating a new owner financed mortgage around their existing mortgage. For example:

____ $100,000 Value
|      |                    With no down payment, the $10,000 difference is 10% closing
|___| $90,000 Your Price                              cost and commission, that the seller
|      |  Owner Financed Mortgage                 would have had to of paid, had they
|___|                                                              sold through a Realtor anyway.
|      | $60,000 The Seller’s First Mortgage
|      |
|___|

You purchase and create a new mortgage with the seller for $90,000. No money down. Their first mortgage for $60,000 is still there, you make payments on your wrap around mortgage with them for the $90,000, and they make the payments on their first mortgage.

  • Second mortgage – is when the seller has a first mortgage as in the above example of $60,000, and instead of a wrap around $90,000 mortgage, you do a second of $30,000.
    (Or when buying, and getting your own new first mortgage, of say $75,000 and you have the seller carry a second mortgage for the balance of the purchase price.)

$100,000 Value
____
|      |
|___| $30,000 Owner Financed Second Mortgage   Total $90,000 Purchase
|      |
|___| $60,000 First Mortgage
|      |
|      |
|___|

  • Seller refinance for cash out – if the seller owns their property free and clear, or like in the above example owes $60,000, has some equity, and must have some cash in their pocket right now. You can suggest they refinance in their name for an agreed amount say $80,000. Their first mortgage of $60,000 is now paid and they get $18,000 in their pocket after paying $2,000 in refinance fees. You can now do a wrap around mortgage of $90,000, or second mortgage for $10,000.
    A seller could also take out a second mortgage, or a line of credit, above their first mortgage, for cash out.

Mentor Tip – 1. When doing a second mortgage, if the payment total with the first mortgage
doesn’t allow adequate cash flow, have the seller pay part, or all of it. I look to
get at least $200 a month cash flow. That is not a hard rule. It depends on other
factors of the deal as well.

Would I accept a break-even deal?
Sure, especially if I were getting a large sum of money up front and or a lot of

equity in the deal.

  1. Depending on the numbers sometimes you may need to ask a seller to pay part.

September 19, 2017

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