first house, questions...

[EJdm]

im in the market in getting my first home....today a saw a nice house but say owner fiance. so my question is how does that work? i am working with an agent.

[ahabion]

Owner finance means that they will essentially be your bank... meaning, your payments will be going to him... he then will probably turn around and pay his monthly mortgage or run off with the money and let the house foreclose or something...

Owner finance is typically a way to open up their house to people who can't get a conventional bank loan. Their credit is bad, bad history of mistakes, or just can't afford a house... owner financing essentially allows for the owner to carry the mortgage while you pay the owner. Contracts of course are typically signed at a closing attorney and stuff so it's a legitimate practice. The con or downside to owner finance is what I stated above but more realistically they want you to come up with a pretty large down payment (upwards to 5 to 10 percent down) and then a high monthly mortgage with a high interest rate. I've seen some of 13%.

How do I know this stuff? I practiced real estate investing in South Carolina several years back and dealing with pre-foreclosures and trying to flip those properties. I learned a lot about investing at that time but since coming to the realization that it's not practical until I get more money on hand, I don't care to take the financial risks and put my own family through that.

I'm assuming that since you're looking for a home, you can and have been either approved or pre-approved for a mortgage loan, yes? If so, then essentially, you've got money in the bank (hypothetically speaking because the bank has your money... ready for you to say "Yes, I want this house!"). Knowing this, you've got a tremendous amount of BARGAINING power or the better term is Leverage to talk the price down. Since I'm a shrewd person, I'm all for lowballing the heck out of anything I can negotiate on... especially houses and cars because I've got the money and they want to sell. In the real estate world, you can have either price or terms (or both if you're a dog of a bargainer, which is good). If they want $150k for the house, I'd offer $110k... to show I'm serious, I'd sign an offer contract and put down a $3k check to go along with the contract. If they accept the offer, that $3k goes toward the purchase price of the house so you now owe $107k. The money you submit with the contract is called earnest money which basically shows the seller that you mean what you say. It's not an empty bid... and where I come from, $3k is a lot of money.

But some would stipulate, "But that's not fair! The house is worth more than that..." What I've learned about real estate and anything for that matter is this... the value attached to anything is only worth as much as the next person is willing to pay for it. So we can say a house is worth a million dollars but it doesn't mean it will sell for that much.. same goes for these ricer cars that have all these mods on them... yes there is/was a lot of money involved with the car and it realistically probably is worth that much... but if no one is willing to buy a 20 year old Honda for $10k... you'd better rethink selling or take the next best thing... Low ball the offer and see what they come back with... who knows... they may come back with $125k... if you're happy with that then great or you can negotiate the terms...

If they say $125k for the house... you can say... well actually, i'd like to counter with $127k but I want you: "to pay all the closing costs" OR "to pay my contractor to put in granite counter tops" OR "get new stainless steel appliances"... the list can go on and on... the lesson to learn is... you've got the money, now NEGOTIATE and get a kick arse deal on a down home economy. Desperate sellers can be found all over the place... but NEVER EVER become a desperate home BUYER... be calm when you see a house and don't let your feelings do your talking... think it through and don't think "I have to get this house because it's the only house ever in the whole wide world that will ever be our favorite house OMG!" (sarcasm)... think it thru like rational people.

I know it was long but I hope it helped. (don't let your realtor tell you how much you want to offer... YOU make the offer... because you'll be the one paying the bank back... not your realtor!) ... nothing against realtors but they want a slice of that money too.... the higher the price the more money they get from commission... which is perfectly fine that they want to make money... but don't let them do your negotiating for you. You want the best house you can get at the lowest price possible and in this down economy I am NOT going to pay full retail for a house... I wouldn't pay full retail on a house in an up-economy. lol

[EJdm]

i wasn't planning on reading the whole thing but i did lol and yes i am already pre-approved. as far as the earnest money goes, my agent told me that its basically just 1% of what they're asking for, correct? ive lost a deal on my first house that i bid for so im moving forward...thanks for the help and examples. its my first house and searching and i did what you just said not to by letting him do the negotiation but he told me first though lol

[ahabion]

Earnest Money can be $1 if you wanted it to be. So long as there is a monetary exchange, it makes the contract legal. Of course, anything more would show the seller that you're serious. No one really cares that you put down a dollar but when you throw up $3k... that's a different story because not everyone can walk away from $3k if you, the buyer, decide to walk away from the deal. At which point, you lose out on your earnest money. Now in the event that they take the earnest money (which is acceptance of the contract) and they fall through on the deal, which is also falling through on any specifications you put into the contract (termite inspection or treatment, hardwood floors, etc) then they are in breach of contract and can then ask for your money back to walk away. If not, then they can hear from your real estate agent or the agent's broker. The brokerage can then take legal action against the seller because they are in breach of contract and can demand compensation and/or damages.

So having an agent is good in that they are insured and have some protections built in that for you as a seller and/or buyer are protected against. The bad side is that they are now your middle-man which represents you, which can of course swing good or bad depending on the agent. Some agents fight hard for you... some just sit around and wait for you to do the leg work.

But yes, be sure to be the one negotiating. Of course they'll contact you to let you know how much they counter offered or any other details but YOU have to be the one that says, "Okay, lets counter offer 'this much.' Let's also send in another offer for 'this much' but I also want it subject to: 'this, this, and this' (contingencies)." Give the sellers options too because that lets them know you're not playing. Many sellers typically don't like the hassle of negotiating so they may not reply. Put a timeline for them to respond inside your contracts... usually 2-4 days or 72 hours or something. Sign and timestamp it. If they don't respond within that timeframe, submit another offer immediately after for less. The main thing is that you get them to react to your offers and for you to get a response. (yes, to resubmit another offer for less takes a lot of balls on your part... but again, you're the one paying for the mortgage and spending your time to submit your offer and them falling short by not counter-offering or responding... "my time is precious and it's going to cost you!")

[BanginJimmy]

I know you said you liked a house that was owner financed, but I would also say to do a LOT of looking at foreclosure houses. You dont have nearly the same bargaining power you do with a bank as you do with a private owner, but in many cases you can find very nice houses for a fraction of their actual value.

[therzdae]

Although, this thread is a month or two old id also agree with jimmy^... I bought my house as a foreclosure, paid a third of what any of my neighbors paid for their houses... and now I havnt even spent 10 grand on fixing it up and its already nicer then the neighbors! Also if you like doing the work your self foreclosures are good so you know the work is done correct :) its a shame though all my extra time goes to working on the house and not my car any more... but it'll pay off in the end... GOOOOOD LUCK!