Seller financing, buyer to get PMI??

[mysticspirit25]

I have an investment property in NC, I am considering selling and offering "owner financing", and I may have a buyer who wants a 100% loan (does not qualify for traditional mortgage b/c of various reasons, but I believe to be qualified in my eyes.) The terms would be sales price of the condo at 110k, 8% interest for 30 years, I know there are risks, but would like to be guaranteed against total loss by having buyer obtain PMI...how does a buyer obtain PMI on a seller financed note??

[Brian B The Loan Professor]

I have never heard of this being done but based on your comment about them not qualifying for traditional financing I doubt they will qualify for any type of PMI as that is harder to qualify for than a loan these days

Good Luck

B

[activlink]

Are you trying to protect against non-payment, or property destruction?

 

While I would advise you to consult with an attorney to draw up the papers for the owner financing contract, Mortgage Insurance is not Homeowners Insurance. It is designed to insure the 20% the buyer cannot come up with to put down, and only that 20%. It is not insurance for the full value of the home, or as you term it a "total loss." As in most bank-financed sales, mortgage insurance can usually be dropped once the mortgage is at 78% of original financed amount (or home value depending on your lender, and after 5 years for FHA).

 

Your owner financing contract should detail out that the buyer is required to maintain homeowner's insurance on the property at all times during the contract until paid in full, and submit annual receipts showing coverage in effect and paid for. If not provided, you have the right to foreclose with notification if insurance cannot be proved. You also may want to consult with your own homeowner's insurance to see if there is a provision for you to maintain coverage on the property even though you are putting it in contract for sale as owner financed (though I doubt they would do this, they would probably advise that your borrower must obtain that).

 

Owner financing does not come without risks. There is no "insurance" for you getting paid in full on an owner financed contract, no insurance company I know would want this business. The reason you are owner financing is because the buyer is too "high risk" for regular financing, I can only imagine the premiums for such an insurance policy of such a high amount. Your duty is to protect your interest. Spend some of the realtor savings on a good lawyer, become very familiar with the laws around your rights and lack thereof, and make sure you are clear on the differences between being the owner in an owner-financed deal versus being a landlord to a rental.

[jop3]

You won't find a mortgage company to insure a 100% loan - they just don't do it anymore. Plus, like Brian said, MI companies actually have stricter guidelines than lenders. High credit score requirements, low DTI's, property standards, etc... So, if your buyer doesn't qualify for traditional financing, he won't qualify for MI.