Can I Do Owner Financing In Pinellas County if I Have A Mortgage On The Property?

Homes for sale in Pinellas County with owner financing are in demand. If you are looking to sell your property, quickly with the least amount of hassle, offering owner financing is an ideal option. The common misconception is that your property needs to be “free and clear” to provide owner financing to a buyer. Although it is ideal, “free and clear” is not a requirement to do so. You can in fact structure an owner financed deal even if you have an existing mortgage on the property. With the proper documentation and the right approach, you can finance your buyer creating a win-win situation for both parties.

Benefits of Owner Financing

Owner financing allows you to lend money to a borrower to help them finance the purchase of your home. Also known as a wraparound mortgage, it is a tactic that has found favor with both buyers and sellers. With owner financing, Pinellas County, FL, sellers have access to a vast pool of buyers who may be unable to obtain traditional financing. When you take on the role of the lender in this type of transaction, you have complete control over the down payment, interest rate and monthly payment amount. With this arrangement, you won’t have to deal with real estate agents, lengthy negotiations, and a complicated closing process. It is an ideal strategy when you want to quickly sell your home with the least amount of hassle possible.

Potential Problems With Owner Financing

Although owner financing with an existing mortgage is possible, it is not without complications and risks. Some of these risks can be expensive the deal with should they arise. You’ll need to examine each one to determine if owner financing is a strategy that could work for you.

Due on Sale Clause

Because of the risks associated with owner financed homes, Pinellas County, FL, lenders enforce what is known as a “due-on-sale” clause. Under the due-on-sale clause, the lender may demand full payment of the remaining balance of the mortgage if you transfer ownership of the property to another party. Although you are not required to disclose the wraparound mortgage to your lender, they do have the legal right to demand payment if it is discovered. If you aren’t able to pay the full amount, they lender could attempt to foreclosure on the property, which ultimately is a tragic scenario for you and the buyer.

Buyer Default

With owner financed homes, Pinellas County, FL, sellers face the risk of buyer default. However, because the buyer has not taken over the mortgage, you are still financially responsible for the property. You must continue to pay the mortgage, insurance, and taxes. When the buyer defaults, you may need to foreclose on the property. Foreclosing on the property, however, isn’t a straightforward process. It is a lengthy and complicated process that requires legal representation to navigate. Not only must you continue to pay the mortgage during this time, but you will also need to pay legal fees and court costs to foreclose on the property.

Equitable Interest

Another critical consideration is the fact that the buyer earns equitable interest in the property with each mortgage payment. Equitable interest is a term that specifies that a buyer has a legal interest in the property. As such, with owner financing, you will have a difficult time foreclosing in the event the buyer defaults on the loan.

Many of these risks can be avoided with proper documentation and by setting clear expectations with the buyer. Also, there are safer alternatives to traditional owner financing that come with much less risk and complication.

Safer Alternative to Traditional Owner Financing

The traditional wraparound mortgage is just one of many varieties of owner financing. Other options are just as effective with minimal risk to the buyer and seller. Each of the below options accomplishes the same goal of financing a potential buyer. The key difference being is the level of protection provided with each.

Lease Purchase

The safest way to minimize some of the risk associated with owner financing is to utilize a lease-purchase agreement or a rent to own arrangement. With rent to own homes, Pinellas County, FL, buyers have the chance to purchase a home even if they are unable to qualify for traditional financing. A lease purchase is an alternative form of owner financing that allows you to sell the property to a buyer without triggering the due on sale clause. With this type of arrangement, you agree to lease the property to the buyer for a specified time. A portion of the buyer’s monthly payment gets applied towards the down payment against their future purchase of the home. At the end of the lease term, the buyer must then obtain financing on their own to purchase the property. The benefit of this approach is that there is no transfer of ownership. As such, you won’t trigger the due-on-sale clause.

Assumable Loan

Some lenders will allow a buyer to take the seller’s place on the mortgage. Under this arrangement, all terms of the mortgage remain the same, including interest rate, payment, and loan term. With assumable mortgage owner financing, Pinellas County, FL, sellers are legally released from any future obligation to the loan. Not all loans are assumable. Currently, only VA and FHA loans allow such an arrangement.

Land Installment Contract

Similar to a traditional wraparound mortgage, in a land installment contract, the buyer makes payments for a specified time, typically 5 to 10 years. At the end of the term, the buyer must obtain traditional financing. Unlike the wraparound mortgage, however, buyers in this type of transaction do not receive equitable interest in the property. If they default on the payment, you can legally regain control of the property without the need to foreclose.

How To Structure an Owner Financed Deal

An owner financed deal can be accomplished even if you have an existing mortgage on the property. The key to a successful transaction is proper documentation. Homes for sale in Pinellas County with owner financing must include a promissory note signed by you and the buyer that outlines the terms of the loan. Specifically, the down payment amount, monthly mortgage, interest rate, and repayment schedule. The promissory note also describes penalties associated with late payments or default. The promissory note should also specify that the buyer must make payment to you and not your mortgage company. If the buyer makes payments to the mortgage company directly, it could alert the lender to a change of ownership and trigger the due-on-sale clause. The second document you must provide in an owner financed transaction is a mortgage document or a deed of trust which provides security for the loan.

Providing buyer with financing to purchase your property is a great tactic when you need to sell quickly or when you want to find a buyer in a tight credit market. Even if you have an existing mortgage on the property, you can leverage this strategy to create an ideal scenario for you and your buyer. With the proper documentation and the right approach, you can successfully finance a potential buyer without too much risk or complication.

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