Question by cocoa: What is the general interest charged for a owner finance home? ?
I want to buy a home owner finance but I see all these calculators on the owner finance websites in my area and I don’t know what percentage to use. I live in Texas.
Best answer:
Answer by tami k
that is contingent upon your credit rating. to be safe i would guestimate on the high side and put in 8% for a calculation. after you do that play around with the calculator a little and put in different interest rates so you can see the importance of interest and how 1% makes a huge difference in your monthly payment
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It really is very variable. If you get an owner that is willing to finance, and they will be holding on to the note for a long time, they will probably be quite reasonable – but expect to pay 1-2% more than the going rate for banks. Some owners will not care about credit; others will.
If the owner plans to sell the note in the near future (which is what most of them do if they are on the owner-finance websites), the rates will probably be higher, and will definitely depend on your credit score. They will also require some money down (5-20% depending on the program)
In any event, 8-9% at this time would not be considered unreasonable. Of course, try to negotiate as low a rate as possible when the time comes. Anything over 9%, in my opinion, would be asking a lot, unless your credit is not so great and you don’t have any money to put down. If that’s the case, any rate is a good rate – because you’ll find very few people willing to do it. Once you get above 10%, you’re venturing into the realm of predatory lending, so be careful.
The only reason I can see for buying a home with owner financing is if you have bad credit and might not get financing from a lender. Generally, the interest rates are a bit higher than the going market rates, because they know that’s the only way you can get the financing to buy the home.
Also, if you get into financial trouble, a short sale (selling the home for less than it’s worth with the lender forgiving some of the debt) is not an option. Why would the seller opt to sell it for less than what’s owed on it, when they can just foreclose and get their property back?
It is usually high, because you are usually a very bad risk, 8-9%.