Jeff, thanks for doing this. Do you sell homes on contract? I have seen some of these deals done and they look sweet. I have a modest 3BR/2BATH and I don't have much equity. If I'm able to upgrade in a couple of years, I might like to sell this one on contract.
The way I understand it is that the buyer often does not complete the sale. You keep his down payment and monthly payments. I also understand that you structure the deal so that if he does complete the sale after the allotted time, you still do fine. Is my basic understanding correct? What more should I know?
I believe you have two different things mixed up.Let's sort them out.
1. Owner financing. If you sell your house and keep the mortgage note ("note"), you are selling the house with owner financing. If there is no other debt on the house, you can do owner financing completely (not saying 100% owner financing) and hold a first mortgage. You get the payments and once the note is fully paid, they get the deed.
2. Wrap-around mortgage. This is probably what you're thinking of here. You write a new mortgage between you and the new buyer, and they pay you as if you were doing the full owner financing. You, in turn, make payments on the original mortgage. Once the first mortgage is extinguished, you still collect payments until that second agreement is satisfied. Then the new owner gets the deed.
Wraps aren't very common, but they do happen. You must get paid more for the wrap than the underlying payment (i.e. 1500 a month on the wrap to pay the 1350 original payment) so there's benefit to you.
Either way, you should most likely try and get a good sized deposit.
If your new buyer has decent credit there shouldn't be a need to sell your primary residence this way.