Expert: Jessica Bryan - 4/16/2010

Question
QUESTION: I want to know first if it is a good idea to buy a home that is owner financed and then the types of things I need to know to buy an older home. I live in Brownsville,Tx and I don't know what else to say except that it is for investment purposes. I would appreciate it if you could respond asap. Thanks.

ANSWER: Hello Esther;
To answer your question about owner financing, unless there is a reason that you cannot get conventional financing at the same rate I don't see why you would want owner financing and why the owner would want to do it.  It is a risk to the owner and unless you have a sharp attorney look over the agreement very carefully you could be agreeing to something that you are not aware of.  Lending is heavily regulated and scrutinized in formal lending institutions and while there have been some unsavory lending practices in the past there are strong government regulatory commissions, laws, and watchdogs looking out for the consumer these days.  This is not so when you look at a private loan. Of course, there may be a straight-forward loan with simple paperwork as a legal agreement that satisfies everything and everyone but I would make sure to have it scrutinized by someone professional before signing.

To answer your second question: buying an older home comes with some problems since you must assume that older homes have older electrical wiring, old pipes, old appliances perhaps, old paint, old wood, etc.  Something is bound to break unless the entire home has been redone.  If the home has been well-maintained then you will probably face the same repairs of any home that is a little older though.  I always suggest a thorough home inspection by a licensed home inspector.  Be especially watchful of the heating and air, insulation, and of course plumbing and electrical.  These are the areas that are bound to be malfunctioning or low performance areas.  Remember, an older home doesn't have the same energy efficiency and didn't have the same building code regulations that are currently used today.  Even safety codes may not be up to date,so be careful and mindful of what they are.

Best wishes,
Jessica Bryan

---------- FOLLOW-UP ----------

QUESTION: Yes, there is a problem with a conventional loan(Is it the same as a personal loan?-14.75%. And the owner will finance at 10% and the title company would be doing the paperwork and setting up payment plans. I don't know much about owner finance, but all the realtors talk about it like it's a wonderful thing. And how do you ask the owner that you would like to have the papers looked at by an attorney without sounding  suspicious? Thanks and let me know what you think. And as for the older home problems, yes we will definitely get a home inspection.

Answer
Hello Again;
So the only loan you could get from a conventional lending institution was considerably higher rate than the going rate for a home loan. This tells me that you may have credit issues or other issues that limit the way you take this loan.  Consequently you are going to get a loan from the seller at a lower rate but still almost twice as high as the going rate of a home loan for a primary residence.  I assume that this is because you are buying this as investment property and not able to secure the same kind of loan.  I know that these are becoming quite difficult to find so if you have an owner willing to do this...go for it!  However....  If you are signing papers with a loan agreement it shouldn't offend the seller for you to take them to your attorney.  This is a standard practice.  You simply say that you have a policy never to sign a contract without looking it over for a day or two.  Then forward to an attorney to discuss.  Regardless of what "All the Realtors say"  this is not necessarily the best thing for you.  What they mean is that it is a good thing that the owner is willing to finance but don't necessarily know the conditiions of the loan in order to advise you.  

Best Wishes,
Jessica Bryan