I worked for a financial services company a few years back. We purchased private mortgage notes/land contracts, etc. from the note holders if they needed liquidity, etc. Like JG Wentworth but for private note holders.
A few things:
-4% is very low for a private mortgage arrangement, outside of a family member making a sweetheart deal to another family member. 7 - 8% was the norm, sometimes rates were as high as 15%. People in this country REALLY want to be homeowners.
-2 years is a pretty short balloon for a residential property, it usually 5 or 10, but not uncommon. 2 years is common for private commercial notes. Depending on what state you are in, if you can't pay the balloon and you end up in front of a judge, if you've made consistent monthly payments on-time and in-full, the judge will likely force the note holder to extend the balloon a few more years and allow you to keep making monthly payments. You don't want to be in that situation though.
-Is the seller using a note servicing company or collecting the payments and managing the escrow accounts themselves? It doesn't really make a difference, but you need to be diligent in recording and saving proof of every payment you make.
-Are there any other underlying mortgages/liens on the property? I assume you looked into all of this already before closing.
I dealt with the note holders themselves more than people in your situation but I was very familiar with this type of arrangement for a long time. I sure do hope you can find something lower than 4% in two years.
Well said! I covered everything. It is valued at close to 1 million. It's a 3 story house on the water with everything, pool, 5 bed rooms everything. This is in South Louisiana. Put this house somewhere else and it's multiple millions . The lady just couldn't rent it out because that is like 6k or more and Air B and B just become illegal. I speculate that is why she wanted out; no l know that is why. She has about 70 properties, yes 70, but this was her actual 2nd home, the rest are rentals. The home is a massive home and it was fully furnished. I mean everything came along with the sale. 4 percent is also a good deal as most are like 7 percent. You're correct!
There’s still more to this story. A sophisticated person in RE would not sell a home at a 30% discount using such an unusual seller financing structure. It really doesn’t make any sense. I suspect there are liens or some other contingent liability. Or maybe there’s a structural issue or something equally concerning and the property needs to be scraped.
Plus, taking on refinancing risk in a short time frame when rates have already gone up pretty dramatically is poor judgment. You might get a refi below 6%, but it’s going to be over 5% if you’re doing it between now and mid-2024.
Well said! I covered everything. It is valued at close to 1 million. It's a 3 story house on the water with everything, pool, 5 bed rooms everything. This is in South Louisiana. Put this house somewhere else and it's multiple millions . The lady just couldn't rent it out because that is like 6k or more and Air B and B just become illegal. I speculate that is why she wanted out; no l know that is why. She has about 70 properties, yes 70, but this was her actual 2nd home, the rest are rentals. The home is a massive home and it was fully furnished. I mean everything came along with the sale. 4 percent is also a good deal as most are like 7 percent. You're correct!
There’s still more to this story. A sophisticated person in RE would not sell a home at a 30% discount using such an unusual seller financing structure. It really doesn’t make any sense. I suspect there are liens or some other contingent liability. Or maybe there’s a structural issue or something equally concerning and the property needs to be scraped.
Plus, taking on refinancing risk in a short time frame when rates have already gone up pretty dramatically is poor judgment. You might get a refi below 6%, but it’s going to be over 5% if you’re doing it between now and mid-2024.
Not really Columbo! I see it all the time. In some areas that is a very expensive home and in certain markets it's hard to push. The previous owners probably got tired of holding on to the house and just sold it at a lower price. Just because your home is worth a million doesn't mean it is going to sell right away, hence the reason sellers often drop the price. A million dollar home in some areas is like a 4 million dollar home in others. The rates are high right now and they probably just wanted to sell it. Any way OP has a lot of equity in his new house.