Guess what? The seller didn’t have a problem paying taxes and insurance. After paying them, he would still net $500/month, instead of losing $700/month like he is now. He only owes 40k out of 140k on the home, so he has a lot of flexibility. He is going to wait to see if he can sell his home the conventional way however. He is not real motivated, and does well financially. He has a Home Equity line of credit for 40k, paying over $700/month… Wow! He may just refinance w/a loan, pay off the line of credit, and bring his payments to half of what he’s paying. He said that way it is not much of a burden. Thanks for the follow up! I wonder if there is a better way to handle this whole deal. I could probably lease option the house for 12-1300, so I would not be able to do the 30 year amortized loan. I would be in the negative.
If I were to buy a house on a Land Contract, say for $140,000, who would be responsible for the insurance and taxes? The seller?
Would I just offer the seller a contract to purchase his home in say 2 years for $140,000 @ 9% simple interest, and that’s it. (Payments of $1,050/month).
Only if I get the deed to the property would I be responsible for the taxes and insurance, correct?
Julie,
Land contract, contract for deed, intallment sale can be a great way to acquire property. My understanding is seller has legal title, buyer has “equitable” title until certain terms meet(pd in full,etc). My advice have an attorney and protect your interests, I was told to know the seller, that is make sure they and the property are “clean”(able to convey clean title to property). Maybe you can offer land contract and have seller transfer title and hold 1st mtg after say 12 or 24 months of payments ? I would ask and eventually want title in my name, it gives you more options down the road. Continued success ! Neal
Incorrect. The BUYER pays the taxes and insurance and the BUYER would get all the tax deductions.
You can negotiate the terms any way you want as long as you and the seller agree on them.
Usually the purchase price (minus any down payment if any) will be amortized over 30 years with the balance due in 2 years.
In your case, if you paid interest only for two years then you will still owe the balance of $140k in two years.
If you amortized the $140k over 30 years at 9% interest your payment would be $1,126.47.
Your balance owed at the end of two years would be $137,997.38
Your payment would be $76.47 per month more by amortizing the balance over 30 years, but you would actually be a couple hundred bucks ahead by the end of the two years.
So it depends on whether you want to spend the $76.47 per month now and owe less in two years, or pay a little less now and owe more at the end of two years.
Thanks for your response. If his taxes/insurance come to $2200/yr, or $183.33/month, would I have to add this amount to the amortized payment of $1,126.47? …making my cost to buy this house $1,309.80?
Why can’t I just offer him 140,000 @ 8%, contract to buy the house for $140,000 in 2 years. My payments would be $933 to the seller. The seller would pay taxes/insurance until 2 years is up, unless I fufill my contract sooner.
Yes, you would add the taxes and insurance to the payment amount. You would also add the taxes and insurance to interest only payment amount. So it wouldn’t matter which way you set the payment up, you still have to pay the taxes and insurance in addition to the contract payment.
Now if you could get the seller to cover the taxes and insurance then great, but it’s the buyer that pays it. If you did get the seller to pay it you probably wouldn’t be able to deduct the taxes on your tax return since the seller was paying it.
Everything is negotiable, but it’s the buyers responsibility to pay the taxes. We ALL have to pay taxes whether we like it or not.
Also, if the taxes and insurance will make the payments unafforable for you now, then how will you afford them in a year or two from now when you go to get your own financing? The lender isn’t going to pay them for you and if you’re in a postion where you need the time to be able to obtain financing in a year or two then chances are you will be paying at least the same interest rate you will be paying now, if not more if you’re doing this because you need to re-establish your credit.
Offer what ever you want and if you can the seller to agree to it then great, but my guess is that the seller isn’t going to agree to pay your taxes and insurance out of his money he collects on payments from you. Would YOU agree to that if you were the seller??? But you never know unless you ask! All he can say is no!