Selling a home and financing it myself

[zm4555]

Hi,

I'm selling one of my houses and a potential buyer has asked me if I would consider financing it myself: $235,000 at 4% for 5 years, $0 downpayment.
He said the most the bank would give him is $200,000.

I'm considering it, but the fact that he's not offering a downpayment worries me. What do you guys think?

Also, he would use his parents home as collateral, which has a $105,000 mortgage and is worth $305,000.

[EugW]

I'm selling one of my houses and a potential buyer has asked me if I would consider financing it myself: $235,000 at 4% for 5 years, $0 downpayment.
He said the most the bank would give him is $200,000.

I'm considering it, but the fact that he's not offering a downpayment worries me. What do you guys think?

Also, he would use his parents home as collateral, which has a $105,000 mortgage and is worth $305,000.
If it were me, I'd run away as fast as I could.

[caliente]

Hi,

I'm selling one of my houses and a potential buyer has asked me if I would consider financing it myself: $235,000 at 4% for 5 years, $0 downpayment.
He said the most the bank would give him is $200,000.

I'm considering it, but the fact that he's not offering a downpayment worries me. What do you guys think?

Also, he would use his parents home as collateral, which has a $105,000 mortgage and is worth $305,000.


Sounds like a bad idea.

[cmackie]

Sell it to someone else who professionals say can actually afford it and won't default on the loan.

If you want the extra income in 5 years, take the proceeds from the sale and invest safely at 4%.

[pitz]

I'm selling one of my houses and a potential buyer has asked me if I would consider financing it myself: $235,000 at 4% for 5 years, $0 downpayment.
He said the most the bank would give him is $200,000.


Horrible, horrible plan. You're selling your house to reduce your holdings of real estate, but essentially, you're just selling the man an option on your house. If the price goes up, he keeps the equity. If the price goes down, he walks away and leaves you with a house that's depreciated. You could track him down and sue him, but if he only qualifies for a $200k loan, and has $0 downpayment, he's likely judgement proof.

Besides, lending money at 4% these days is a terrible, terrible investment. And if you own multiple houses, you're already over-exposed to real estate.


I'm considering it, but the fact that he's not offering a downpayment worries me. What do you guys think?


Absolutely NOT!


Also, he would use his parents home as collateral, which has a $105,000 mortgage and is worth $305,000.

Tell him to get his parents to get a HELOC to 'gift' him a downpayment so he qualify for a loan, with or without CMHC insurance, that's large enough to pay the price you're asking.

[TrevorK]

Tell him to get his parents to get a HELOC to 'gift' him a downpayment so he qualify for a loan, with or without CMHC insurance, that's large enough to pay the price you're asking.

Bingo - this is the best idea.

If his parents are willing to put their home up as collateral, then they should be willing to loan him money for a downpayment by borrowing against their home. As a plus, a HELOC will be prime or prime + 1, which would make it between 2.5 and 3.5 percent interest.


Further, whenever you are completing this sort of "deal" the question is - what's in it for you? Is your home that hard to sell you need to finance it to entice people to buy it? Charging 4% interest for someone who doesn't qualify at the bank is putting all the risk on you. If you were to do this, you should be charging 10-12% for the risk involved, and the benefit to him is that hopefully in 3-5 years he can refinance through the bank.

[GonePostal]

Hi,

I'm selling one of my houses and a potential buyer has asked me if I would consider financing it myself: $235,000 at 4% for 5 years, $0 downpayment.
He said the most the bank would give him is $200,000.

I'm considering it, but the fact that he's not offering a downpayment worries me. What do you guys think?

Also, he would use his parents home as collateral, which has a $105,000 mortgage and is worth $305,000.

This is a very bad deal from your side of things. If you are confident in the value of the home you could do a vendor take back mortgage (VTB). Even then it's for a much smaller portion of the home value (10-30%) and at a much higher interest rate (8-15%). It all depends on how much he puts down, at what price and how good of a negotiator you are.

Otherwise just walk away from the deal and find a fully qualified buyer. 4% is ridiculous for the amount of risk you are taking.

[zm4555]

Thanks for the advice guys. My family also said the 4% return is not worth the risk involved.

Tell him to get his parents to get a HELOC to 'gift' him a downpayment so he qualify for a loan, with or without CMHC insurance, that's large enough to pay the price you're asking.

This is a great idea, thanks pitz. I'll bring it up with the buyer. If they can't make it work I'll just find someone else.

And if you own multiple houses, you're already over-exposed to real estate.

Agreed. This is why I'm selling.