How I Bought This Place

I bought this property in early summer '10.  The price was $45k.  It was previously owned by an elderly lady who's husband had passed away a couple years before.  She was no longer able to take care of the place by herself.  The property is 275' x 575', 3.6 acres, with pasture and some woody areas, completely fenced.  It's big enough to do something with, not so big I can't handle it alone if the job was not in the way.  Out back is a 16x20 livestock shelter.  It's a few posts with a metal roof and plywood covering the back wall.  The garage is 12x24, slab floor, metal roof, with power and in great shape.  The house is an old mobile home, 1972...nearly as old as I am.  Originally 12x50, an addition was built on to the north side bringing it to 20x50, plus a porch in the front.  It's in good repair, everything works, new appliances, new roof, new heater/air conditioning unit (greatly desired in Florida).   There is a well with outstanding water, a septic tank, and everything runs on electricity.  The place has everything I need, with space to do what I want.

I make a decent living working for an industrial contractor.  My bills are low.  Truck has been paid off since '09.  I'm able to save a few pennies here and there.  I scraped together a few bucks, came up with $5000 for a downpayment and went looking for a home.  Twenty years ago, following some misadventures, I went through bankrupty.  I found the experience to be unsavory.  In the years that followed I never took up loans or reestablished a credit rating.  A miracle allowed me to finance a truck with no credit score.  What helped was the fact I owned my home.  In '02 I had found a home for sale with owner financing.  The downpayment was 5%, $1600.  The mortgage was $372/month for 15 years.  Even with 12% interest it was cheaper than renting and a deal I could not pass up.  During a storm, a tree fell on the house causing significant damage.  The insurance claim, as it turned out, was to be in litigation for several years.  I needed another home.

Financing the truck had brought me from no credit score up to 580.  Pitifully poor, but it was better than blank.  Banks were not interested in doing business with me as my credit history was not established other than the truck.  I did not qualify for a USDA loan as 600 is the minimum requirement.  There was still the option of hunting for owner financed property.

This property has a critical flaw when it comes to bank financing.  The structure is an antiquated mobile home.  Although it is in good repair, banks won't touch them at around 30 years old.  The only way to buy it with financing is for the owner to hold the note, which is exactly what she did.  The interest rate is 7%-a far cry better than my house in town. I signed in May of 2010.  If I stick with the regular monthly payment I'll be paid off in late 2017.  

Owner Financing has the disadvantage that the rate of interest is usually significantly higher than loans from banks.  If I had the credit rating, and somehow found a bank that would finance a 1972 trailer, I'd be paying around 3-4% interest rather than 7%.  Banks will set the term of the loan for longer durations, say, 30 years.  The seller wants the money as soon as possible so she can move on with her life.  A 30 year note with a bank at 4% for 30 years would be $190.97/month.  In addition to this amount some banks set up loan payments to include property taxes and insurance, as well as mortgage finance fees.  $500/month is affordable to me, and having the place paid off in 7 years is something to look forward to.

There is a distinct advantage to owner financing which can not be found with a bank.  I still save my pennies.  When I have enough of them I will approach the seller and offer 75% of the balance due as full payment of the mortgage.  No bank would ever be able to accept such an offer.  My current balance is around $14k.  In a few months I'll be able to offer $10k to pay off the place.  I know for a fact that the seller is in a weak financial position.  Rather than waiting 2 1/2 more years with $500/month coming in, the prospect of a lump sum immediately will be tempting, and may be in her interest to accept.  She may decline the offer.  That will be no problem at all.  I can keep making the payments.  She may be willing to negotiate a different amount.  I can pay the debt off early, but I'll be wanting to settle for less than the balance.  If we can find common ground, this place will be paid for by March.

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Comments

HarrySummer's picture

Good on you Ken, great story and all the best with it.

Man I wish properties were that cheap over here. we'd pay sometimes from $600 to $1 million depending on the area. Are you close to a major town etc?