Owner Financing @ triple the market value?

Owner Financing Available! Many buyers have a hard time getting qualified for a mortgage these days. According to the Federal Reserve, nearly one quarter of mortgage appliants are being rejected.

FICO scores matter more than ever and many buyers might be looking towards Owner Financing as a way to purchase a property.

We recently spoke with a Polk County home owner looking to sell his beautiful golf front property. Before we met, we took the time to research the market and neighborhood and found that comparable homes haven't sold for more than $55,000 only a month ago. The seller sold us he had sold similar homes in 2005 for around $160,000 and would be looking to sell his current one within that price range. Wow, three times its market value.
We suggested he rent the place instead and wait until the market recovers. He then said  he would consider Owner Financing.  His terms seemed pretty reasonable and we liked the fact that he would be willing to help a financially stable buyer that wasn't able to qualify for a bank loan because of tight qualification criteria. What really bothered me was the fact that his Owner Financing didn't include a price reduction anywhere near what the property's current market value was.

In other words, the buyers would have to grossly overpay in order to do Owner Financing and by overpay I mean almost triple the market value. How great of a deal is that? Yes, the owner would give great terms on the loan, fair interest rate of 6% - wonderful but not so great anymore once you look at your monthly payment:

Market Value $60,000 at 6% over 30 years = about $360/mo

Owner's Market Value $150,000 at 6% over 30 years = $890/mo

Okay, let's assume the buyer is so desperate to own this home and doesn't mind that type of immensly inflated market value. 1 year after the closing, the owner gets laid off. He can't sell the home to get out from underneath the mortgage because the home hasn't appreciated enough by far. Now what?

Let's assume the buyers gets a great job offer and has to relocate but can't sell the home because...........yes, it hasn't appreciated enough by far. Now what?

Let's assume the buyers want to refinance after a year because their credit score has improved and their lender orders an appraisal..............not going to work either and you already know why.

Do your homework! Owner Financing can be an alternative to restrictive loan criteria imposed by banks but you need to do the math and weigh your options before you sign that dotted line.