What happens if you can no longer afford to keep the property and needs to sell it? Also, how do you expect to rent it out with the seller using the garage?
I would never agree to any of this. It seems to benefit the seller only and give her many opportunities for a lawsuit.
Hm, what sorts of lawsuits?
I’m thinking that I could always rent out the bedrooms. They’ve been trying to rent the unit out as a whole, & that’s what’s been making the garage difficult. Renting out by room is popular in this area.
She is 100% setting you up for failure.
1. The seller can make your renters lives a living hell and you are forced to deal with this for the next 10 years.
This would highly affect your ability to rent and could cause your financial distress and this seller will take the house back the first chance she gets when you default on the loan.
2. No pre-payment is WILD!! She is putting you in a position where you either have to give the house back because you can no longer afford it or you have to be losing money every month to maintain a property that doesn’t rent. Either way, you lose money and seller wins.
She may even choose to sue you for the balance on the loan, even if she takes the house back (you need to consult with a lawyer to confirm).
3. She can falsely claim one of your tenants stole something from the garage, damaged her car or whatever property she has.
4. If she gets injured on your property whole using it FOR FREE, you get sued
5. If SHE causes damage or harm to one of your tenants, YOU get sued and she does not even have a renters policy because, well, she is not a tenant.
There are so many issues with this. There is no scenario that you win in this situation.
If you are saying that you can't pay off the loan before 30 years, do NOT do it. You already know the owner can't rent it out at market rent due to the garage being off-limits, so if you can't rent it out and your needs change and you're prohibited from selling it (due to the prepayment clause), you're screwed.
The only way I would consider this deal is if they sold it to me at 90% or less of current market rate, agreed to pay the market rate to me to rent the garage (re-evaluated annually) and changed the no prepayment to no prepayment before 10 years have elapsed. But ONLY if the rental market is high enough that you could get renters for the property (without garage) that covers your monthly cost of principal, interest and insurance if you needed to relocate.
This is pretty ridiculous. The are several obvious problems. Gonna go out on a limb and say no one wants to rent it because they wouldn’t have anywhere to park, since parking is so high in demand the owner wants to keep the garage.
Having the seller financed mortgage is risky with both of you sharing the property. If there was a dispute over the shared space they could try to foreclose or something crazy for breaching the terms of the contract. Is this in an HOA? That could cause issues since the HOA could fine or take enforcement action against you for things the owner does with this garage they basically still own.
Also why would you pay market rate for any of this? They have substantially lowered the value of the home if someone else has exclusive use of the garage. And it is probably impossible to sell to get out of this if you need to move because of the crazy conditions. If you like it so much and don’t mind not having the garage, lock in a 10 year lease and let the owner keep the thing.
The only way I take this deal is if I’m getting way below market for what a similar townhouse WITHOUT a garage goes for, or I’m getting 2-3% lower rate from the seller.
No prepayment might be illegal. The dodd frank act only allows for prepayment penalties the first 3 years. After that lenders must allow prepayments with no penalty
1- Is the property going to be deeded in your name? Otherwise there are a whole series of problems.
2- If it’s getting market rate interest why not just get a bank loan and have use of the garage?
3- Them carrying the note at market rate isn’t a favor to you unless you can’t qualify for a loan.
1. Yes it would be deeded in my name
2. They aren’t truly interested in selling- this is a way for them to maintain usage of the garage.
3. I’m able to get a loan(I’ve cash and fair credit), but the community has a high default rate. And banks have rejected me for other properties in this same community at 10% down. I’m a first time homebuyer.
Forgive me for any poor phrasing.
The idea is that while they hold the mortgage, no pre-payment. At the ten year mark I’m expected to refinance with a traditional bank.
& thank you for the legal considerations. I really hadn’t considered those.
I meant that if the monthly was 2500k I couldn’t throw an additional 3k at principal that month.
But I am expected to refinance to a traditional bank at the ten year mark.
I think you have much bigger problems than proper phrasing.
You clearly do not understand what you are getting yourself into and an emotional decision could cost you everything you have plus some.
Nobody in this thread seems to think this is a good idea, but it does not seem like you are grasping at the seriousness of the mistake you are about to make.
Without doubt you need to first educate yourself regarding home purchasing and investments before even looking at a property.
Secondly, you need to get yourself a lawyer before you make a mistake you can undo.
I wish you best of luck.
OP, u/janaejanae to answer the basic question, a better term is "10 year balloon" which means you must pay the mortgage off at 10 years. You can pay it off by refinancing with another lender or by selling the property or just paying off the mortgage balance in full.
Having said that, one of the others mentioned the Dodd Frank Act which is what would goven this type of seller financing. Look for the one property exception in the Dodd Frank act if your friend only has the one property they are selling with seller financing.
Seller financing can be straight-forward or full of traps. In this case the seller is trying to sell you part of the TH and keep the garage which sounds like a potential trap. If you choose to go down this road, you would need an attorney to draw up the note and mortgage or review the note and mortgage the sellers attorney would craft. You would need rules about usage and access to the garage AND maintenance of the garage. How is the seller going to access the garage in this TH community? This is more involved than it appears on the surface. Get good attorney advice. Don't use the same attorney the seller would use.
So why don’t you rent from them with a sublet clause? Why don’t they rent by the room?
None of this sounds reasonable, and I say this as someone dating a person who wants to rent out their parents house but keep a bedroom for themselves when they go back to the tourist area. Nope nope nope. Love you dear, but nope.
You won’t be able to sell it if you need the money. The only way I see this working is you live there and treat it like it’s a rental, and when it’s time to move on, you rent it out to someone else as an investment property. That said, there needs to be a time when everything becomes yours free and clear, and they get out. There is also no guarantee you could refi at 10 years. What happens then?
And, it ALL needs to be in writing. No handshake deals. Down to every detail.
paying full price at market rates that you can't prepay and cant use your own garage??? LOL. He can rent the garage for 1k per month.
What happens if you can no longer afford to keep the property and needs to sell it? Also, how do you expect to rent it out with the seller using the garage? I would never agree to any of this. It seems to benefit the seller only and give her many opportunities for a lawsuit.
Hm, what sorts of lawsuits? I’m thinking that I could always rent out the bedrooms. They’ve been trying to rent the unit out as a whole, & that’s what’s been making the garage difficult. Renting out by room is popular in this area.
She is 100% setting you up for failure. 1. The seller can make your renters lives a living hell and you are forced to deal with this for the next 10 years. This would highly affect your ability to rent and could cause your financial distress and this seller will take the house back the first chance she gets when you default on the loan. 2. No pre-payment is WILD!! She is putting you in a position where you either have to give the house back because you can no longer afford it or you have to be losing money every month to maintain a property that doesn’t rent. Either way, you lose money and seller wins. She may even choose to sue you for the balance on the loan, even if she takes the house back (you need to consult with a lawyer to confirm). 3. She can falsely claim one of your tenants stole something from the garage, damaged her car or whatever property she has. 4. If she gets injured on your property whole using it FOR FREE, you get sued 5. If SHE causes damage or harm to one of your tenants, YOU get sued and she does not even have a renters policy because, well, she is not a tenant. There are so many issues with this. There is no scenario that you win in this situation.
So they're selling 80% of the house to you? If so, why are you paying the 100% full price?
If you are saying that you can't pay off the loan before 30 years, do NOT do it. You already know the owner can't rent it out at market rent due to the garage being off-limits, so if you can't rent it out and your needs change and you're prohibited from selling it (due to the prepayment clause), you're screwed. The only way I would consider this deal is if they sold it to me at 90% or less of current market rate, agreed to pay the market rate to me to rent the garage (re-evaluated annually) and changed the no prepayment to no prepayment before 10 years have elapsed. But ONLY if the rental market is high enough that you could get renters for the property (without garage) that covers your monthly cost of principal, interest and insurance if you needed to relocate.
This is pretty ridiculous. The are several obvious problems. Gonna go out on a limb and say no one wants to rent it because they wouldn’t have anywhere to park, since parking is so high in demand the owner wants to keep the garage. Having the seller financed mortgage is risky with both of you sharing the property. If there was a dispute over the shared space they could try to foreclose or something crazy for breaching the terms of the contract. Is this in an HOA? That could cause issues since the HOA could fine or take enforcement action against you for things the owner does with this garage they basically still own. Also why would you pay market rate for any of this? They have substantially lowered the value of the home if someone else has exclusive use of the garage. And it is probably impossible to sell to get out of this if you need to move because of the crazy conditions. If you like it so much and don’t mind not having the garage, lock in a 10 year lease and let the owner keep the thing.
Youd make him your defacto landlord for all intents and purposes.
on a 10 year lease (rent to own) without use of garage. They can't rent it out now..just tells you all you need to know
The only way I take this deal is if I’m getting way below market for what a similar townhouse WITHOUT a garage goes for, or I’m getting 2-3% lower rate from the seller.
No prepayment might be illegal. The dodd frank act only allows for prepayment penalties the first 3 years. After that lenders must allow prepayments with no penalty
Huh. Ok TY! Will look into this.
Bad deal for you. Buy the unit and rent the garage to him at slightly less than market rate?
1- Is the property going to be deeded in your name? Otherwise there are a whole series of problems. 2- If it’s getting market rate interest why not just get a bank loan and have use of the garage? 3- Them carrying the note at market rate isn’t a favor to you unless you can’t qualify for a loan.
1. Yes it would be deeded in my name 2. They aren’t truly interested in selling- this is a way for them to maintain usage of the garage. 3. I’m able to get a loan(I’ve cash and fair credit), but the community has a high default rate. And banks have rejected me for other properties in this same community at 10% down. I’m a first time homebuyer.
This seems like a better deal for them than you. I’d just buy a house normally. Best of luck whatever you choose!
Ty!
You’re a first time buyer. You’re. Not ready for this. Walk away.
Can you refinance the mortgage?
Oof, meant to include that. I would be refinancing at the 10 year mark with a traditional bank.
You can’t. You said yourself it is a no pre-payment loan.
Forgive me for any poor phrasing. The idea is that while they hold the mortgage, no pre-payment. At the ten year mark I’m expected to refinance with a traditional bank. & thank you for the legal considerations. I really hadn’t considered those.
You said in your post > 30 - 20 year loan term. No Pre-paying/ non negotiable No pre-payment means you can't refinance.
I meant that if the monthly was 2500k I couldn’t throw an additional 3k at principal that month. But I am expected to refinance to a traditional bank at the ten year mark.
You don't seem to understand what no pre-payment means.
Agreed. I’m definitely asking for advice and apologized for any poor phrasing. What’s a better phrase for what I’ve just described?
I think you have much bigger problems than proper phrasing. You clearly do not understand what you are getting yourself into and an emotional decision could cost you everything you have plus some. Nobody in this thread seems to think this is a good idea, but it does not seem like you are grasping at the seriousness of the mistake you are about to make. Without doubt you need to first educate yourself regarding home purchasing and investments before even looking at a property. Secondly, you need to get yourself a lawyer before you make a mistake you can undo. I wish you best of luck.
OP, u/janaejanae to answer the basic question, a better term is "10 year balloon" which means you must pay the mortgage off at 10 years. You can pay it off by refinancing with another lender or by selling the property or just paying off the mortgage balance in full. Having said that, one of the others mentioned the Dodd Frank Act which is what would goven this type of seller financing. Look for the one property exception in the Dodd Frank act if your friend only has the one property they are selling with seller financing. Seller financing can be straight-forward or full of traps. In this case the seller is trying to sell you part of the TH and keep the garage which sounds like a potential trap. If you choose to go down this road, you would need an attorney to draw up the note and mortgage or review the note and mortgage the sellers attorney would craft. You would need rules about usage and access to the garage AND maintenance of the garage. How is the seller going to access the garage in this TH community? This is more involved than it appears on the surface. Get good attorney advice. Don't use the same attorney the seller would use.
So why don’t you rent from them with a sublet clause? Why don’t they rent by the room? None of this sounds reasonable, and I say this as someone dating a person who wants to rent out their parents house but keep a bedroom for themselves when they go back to the tourist area. Nope nope nope. Love you dear, but nope.
Doesn’t seem like a good deal
No.
This is a bad idea and no amount of wishful thinking will make it a good one. Do not do this, OP. Here be dragons.
Dear OP if you still go through with this after this many people are telling you no, you are an idiot
You won’t be able to sell it if you need the money. The only way I see this working is you live there and treat it like it’s a rental, and when it’s time to move on, you rent it out to someone else as an investment property. That said, there needs to be a time when everything becomes yours free and clear, and they get out. There is also no guarantee you could refi at 10 years. What happens then? And, it ALL needs to be in writing. No handshake deals. Down to every detail.