Whats the downside to this owner financed deal?

Upside for her is she can get financing for a co-op at only 20% down -- mortgage lenders are starting to move to 25%-30% -- IF he can move the mortgage to her. This is not a house, so that's a big IF -- the co-op board has to approve this, and it sounds unlikely they want to bring in a buyer who is end-running bank qualification.

The downside for her, then, is that the situation in which the board is most likely to fall for this is one in which she's paying an above-market price. (Co-op boards tend to let you get away with stuff if you bid high). She should check the market comps carefully.

ali r.
{downtown broker}

Her downsides are:

- As part of the purchase application (Board package), Boards usually want to know the DETAILED terms of the proposed financing. They might not look too kindly at a balloon due in five years. As each Co-op has its own minimum down payment requirement, I'm assuming her building's is 20%. I don't believe a qualified buyer would have any trouble getting a Co-op loan from a bank with 20% down.

- The fact that she would HAVE to refinance with a bank within five years. Five years is a lifetime away, but the fact remains "doing nothing" at that time will not be an option. And who knows what her situation will be at that time?

Her upsides are:

- She knows the building, and could perhaps demonstrate to the Board that she has been an excellent tenant. Presumably, she's already been "vetted" by the Board when she applied to rent the apartment.

- Apparently, the owner HAS to sell - or move back into the apartment - since he can no longer sublet. That should give her additional negotiating clout.

His downsides are:

- He (obviously) is not getting his money up front. If your GF were to default, he would have a lengthy and expensive legal procedure on his hands.

His upsides are:

- For tax (or other) reasons, he may prefer getting his $$$ in "installments"

- He has a ready buyer

- He'll have no marketing costs, no lengthy (and expensive) selling timeframe, and no broker fees.

The market does not currently favor sellers. Unless she absolutely loves the apartment, and unless the price is better than just "isn't bad", what's the reason - besides moving expenses - to focus on just this one apartment? Assuming she has the income, resources and good credit, she could qualify for a loan and buy anywhere. If she doesn't, even if the seller would owner finance, she wouldn't pass the Board.

make sure the mortgage is officially recorded ... if you take no other advice, take that advice.

Thanks excellent info, Especially officially recording the mortgage. I can see the tax implications already.

my concern was with where the interest rates will be in 5 years. IT's a small coop and they would like her to stay.

I think since the first 5 years of the loan are all interest, he was looking at using that as a way to get more for the apartment spaced out over 5 years.

She is now shopping other places as well.

Well, co-op purchaser does not sign a mortgage - she will sign a document called a "secutity agreement".
The security agreement is not recorded in the clerk's, but it gives the lender the right to foreclose on the apartment if purchaser fails to repay the loan.
In a co-op loan, the purcaser signes a UCC-1 Financing Statement which is filed in the clerk's office.

Speak to your real estate attorney for details.

elena
(broker)