Can I Do Owner Financing In Kentucky If I Have A Mortgage?

Owner financing with a mortgage in Kentucky can be a great way to enable the sale of a property and give you and the buyer different options. It is also possible for you as the seller to keep your mortgage in place when transferring property ownership – an attractive option for many homeowners looking to sell their property quickly. Especially if you have a mortgage that is near what the property is worth. Owner financing occurs when the owner of the house finances the house directly and is usually alor quicker than obtaining a mortgage.

Ready to sell your property? Wondering if you can do owner financing in Kentucky even with a mortgage on the house? We have the answers! Dive into this blog post and find out strategies that will help get you moving in the right direction with the information to help you make the right decision for you on owner financing your home in Kentucky .

What Is Owner Financing ?

Owner financing occurs when a seller of real property agrees to lend money to the buyer, rather than having the buyer obtain financing from a traditional lender like a bank and finances the house directly to the buyer. The owner of the property functions as the lender, and the terms are negotiated between the two parties and typically include interest payments and an agreement outlining when these payments must be made. Owner financing is often used in situations where traditional financing is difficult or impossible to achieve or when the seller owes to much to sell it on the MLS. Other cases of people wanting to owner finance a house is to maxamize the amount of money they make while also minimizing the tax implications against you by recieving your money over time vs in a lumpsum. Alot of times owner financing is done when buyers have poor credit, self-employed workers who can’t obtain original loans, or those who lack sufficient income verification. Seller financing can have advantages for both parties; buyers may be able to purchase a property despite difficulty with obtaining a bank loan, while sellers may benefit from higher interest rates than are offered by banks. If you are considering owner financing your house in Kentucky then read the rest of the blog for our tips when doing so !

Options when selling your house through owner financing .

Selling a home can be an intimidating process. But with the right knowledge, it doesn’t have to be! Homeowners who are looking to sell their property now have three choices: list through an agent; do-it-yourself listing; or selling directly to a real estate investment company. To make sure your agent is compensated for their work in facilitating the transaction, consider incorporating 6% of your total sales price into your down payment amount. And BOOM! – you’re ready to start house hunting!

When selling your house through owner financing you have multiple ways you will be paid from the sale of your house , you also get better tax benefits then if you were to sell your house for the full price upfront ! Below are the ways you will be paid from the sale .

Down payment from the buyer.
Monthly payments from the buyer.
Interest on the owner financing note.
The Balloon payment (If you have one)

Homeowners and buyers in Louisville, Kentucky are loving the owner financing trend! It’s a great way for sellers to access more potential customers by providing additional opportunities that don’t require traditional bank loans. Best of all… it gives prospective homebuyers even MORE options to give the homeowner more money by having more flexibility then working with a traditional bank.

What is a balloon payment ? Should I make my buyer do a balloon payment ?

Balloon payments are typically used when you want to obtain more favorable loan terms. Balloon payment is the lump sum due at the end of a loan’s term that pays off the remaining principal balance on a mortgage. Balloon payments are usually 3 -7 years after initial loan closing date. It is important to note that such payments, although lower monthly costs in the short term, can be risky as inflation usually rises over time and increase rates of requirement for balloon payment as well. Thus, whether or not you should make your buyer do a balloon payment ultimately depends on their financial situation and ability to pay back the lump sum at the end of loan’s term and how well they keep their credit score. Personally we recommend only doing shorter term baloons – less then 10 years to only investors who are more used to this type of financing .

Should I charge interest on my seller financing note ?

When considering a seller-financed deal, the situation of your house is key! A little extra interest could be great – if it’s feasible and would benefit both parties. But watch out: too much added interest can make selling more challenging and potentially kill the deal altogether. So carefully weigh all options before settling on what makes sense for you! There will also be a difference on the terms you are able to get if you sell it to an investor vs selling to an homeowner .

How do I know if I can charge interest ?

When seeing if you should charge interest or not on a property there are a few factors you should decide. The first of many being… Am I selling my house to an investor or to a homeowner? If selling to a homeowner that calculation is usually pretty simple. You will usually finance for a homeowner anywhere from 20-30 years if you wanted to make it more ideal for them. You will ask the homeowner the most they can pay a month and base your payments off of that for the house, you also want to verify income just like a lender would to see if they can pay the loan back. Make sure when structuring this deal you keep in mind current interest rates for the buyer. You would use an amortization calculator to input the interest and loan amount time. We prefer and recommend the one on Bankrate, it is super easy to use.

Charging Interest If An Investor Is Buying The Property In Kentucky.

When selling a house owner financing to a investor, they usually are aiming to make $300-$600 NET cash flow from their purchase – including rehab and holding costs. Don’t forget to factor in taxes and insurance when calculating payments. If the investor does not have at least $300-$600 a month in net cash after calculating the mortgage and taxes and insurance they will probably not buy that property unless there is alot of equity and they can fix the property up and sell it for a good profit . Investors also will not typically put down more then 10-15% because at that point they would be putting down more then they do with their bank .

Once you have this total amount you can then check Zillow.com and Rentometer.com for the average rent in your area for your house and then see if there is $300-$600 difference for the investor to make every month from the rent of the property, if so make sure the down payment is 10-15% or less (The lower the downpayment the quicker the sale) . It is also a good idea to keep your interest rate at or below current investor mortgage rate so you can be competitive. Obviously you can offer and start at whatever terms you want when owner financing your house but this is what we have seen what investors like in their owner financing deal.

Seller financing with a mortgage

In some states, you can create something called a “wraparound mortgage” in which you extend a mortgage to a buyer (usually at a higher rate of interest) while still paying your own mortgage to the bank. However, this is not legal in all states and all situations, and there are additional clauses that you should be aware of.

Is A WrapAround Mortgage Legal In Kentucky ?

Are you looking to figure out whether wrap around mortgages are legal in Kentucky? A typical wrap around mortgage is a second loan – wrapped around the existing first loan – that assumes responsibility for payments on the original loan. It can be used for homeowners attempting to purchase a home without making a down payment, as well as for other reasons. From a legal perspective, wrap around mortgages are allowed by the Kentucky Department of Financial Institutions. Still, it is best practice to consult with an experienced real estate lawyer prior to engaging in this kind of agreement. Doing so can help ensure your rights and responsibilities as both lender and borrower are properly represented and protected throughout the course of the transaction.

If you are looking for a lawyer to consult with about wrap around mortgages in Louisville Kentucky or in the state of Kentucky in general then we have the perfect people for you to talk to. Borders And Borders is our recommendation for attorneys to consult with about matters like this. They have closed over 100 transactions for us personally in the last 3 years and they never dissapoint ! Harry Borders is our go to there !

Should I Tell My Current Mortgage Lender I Am Owner Financing My House ?

It depends on your exact situation in Kentucky, as every state has different laws regarding real estate transactions and mortgages. If you haven’t already, you should consult with a real estate lawyer to make sure that everything is handled properly before you sign the paperwork. This will help ensure that your records all stay consistent and up-to-date, saving yourself from potential long term headaches and issues down the line.

How Do I Make Sure Somebody Is A Good Quality Candidate To Buy my House On Owner Financing ?

When you are selling your house through an owner financing , you should remember to make sure that whoever buys it is a quality candidate and can afford the payments. They should make 3X the amount of the monthly payment every month. 4X if you want to be safe, Your best bet when vetting potential buyers is to check their credit score. If someone has a high credit score, this means that they are most likely reliable in terms of taking on debt and paying what they owe; lenders look for scores greater by 675 and higher for approval. Lower if it is a first time homebuyer. Furthermore, ask to see proof of income from the buyer so that you feel confident they have the ability to make the necessary financial commitment each month. You should also consult with an experienced CPA and lawyer to make sure everything is up-to-code before signing off on any documents. With these steps in place, you will be well informed in making an informed decision about who purchases your property.

Who Pays Taxes And Insurance On The Owner Financed Deal ?

The person who holds the deed will pay the taxes and insurance on the property. This also depends on if the person holding the note wants to collect taxes and insurance cost on the loan as well to ensure those are paid to protect their interest in the house.

In conclusion, you can do owner financing even if you have a mortgage on the property. It is important to know all your options and what will work best for you. There are many factors to think about when owner financing such as balloon payments, interest rates, and legalities when doing this, please consult with an attorney prior to making any financial decisions . By understanding all these topics, you will be well equipped to make the best decision for selling your house in Kentucky . If you still have questions regarding seller financing or anything else related to real estate, don’t hesitate to give us a call at 502-461-1450 or fill out the form below . We would be more than happy to help answer any of your questions!