From: "John A. Weeks III" 
Newsgroups: misc.invest.real-estate
Subject: Re: Owner Finance/lease option, how to buy my friend's house??
Date: Wed, 26 Jan 2005 22:13:26 -0600

In article <1106784253.110347.55030@c13g2000cwb.googlegroups.com>,
 thelionsden@satx.rr.com wrote:

> Here's my basic question:  how do I go about buying my friend's house??
> 
> Now here are the details that complicate things;
> 
> I don't have the necessary credit to get a loan and buy this house
> outright.  It simply isn't possible at this point.
> 
> I *do* have (or will have) between $6 and $10k up front.
> 
> My friend owes $48k on her house, and has stated that she would like to
> make $10k when she sells it.  The original purchase price in 1998 was
> about $52k.  I'm not sure what payments are but they are under $600 a
> month, I know that much.

Have you tried a bank or a credit union?  On a $60K mortgage with
$10K down, you would have to have pretty nasty credit or no
job history to get turned down.  Even if you feel pretty negative
about it, I'd still make the trip to try to get "pre-qualified".
That will tell you for sure, and then you will know what you have
to do down the line to get approved if you cannot do so today.

> How can we arrange this so it's beneficial to her as well as me?  From
> what I've read on the internet, she can't "sell" it to us while she
> still owes on it, aside from a "wrap around" mortgage (not sure I
> understand that)...

Wraps are pretty uncommon today.  They were much more common
in the 1980's when lending laws were different.  But you are 
right...she would have to settle the loan in order to sell it.
But that is what closing is for.  You buy the home, give the
money to the escrow agent, and get the house.  The escrow 
agent pays off the mortgage, and gives the remainder to the
seller as profit (if any, or collects the shortage from the
seller).

> She can, however, lease it to us, correct?  What if she leases it to us
> (us=me, my partner, our children) with the option to buy later?  Is it
> common to specify in a contract that she can't renig on the option part
> of this later?   We are thinking that within a  year or two we could
> qualify for a loan and buy it at that point.  In the interim, though,
> how do we make it so it's a good deal for all involved?

A rent to own or a lease to own could work.  So could a contract
for deed.  But both have a big problem...you could satisfy all
the details on your end, and then the seller could mess up and
lose the house, and you are simply out of luck (in most cases,
a few states do protect you in these cases).

> Should we offer her cash up front that she would return at some point
> if we weren't able to follow through with the sale? Would she just hold
> onto the cash, or apply it towards what she owes on the house, or what?
> I am just totally confused on all of this, and want to figure out how
> it's commonly handled.

In a contract for deed, you pay her for the house on a monthly
basis, and then she uses the money to make payments on the loan.
The down payment and monthly payments are set up so that your
obligation and her obligation end at the same time, or hers ends
before yours does.  If not, then she cannot give a clear title.
All this works in theory.  Consider what happens if 5 years into
this, she misses a few payments and the property goes back to 
the bank.  In that case, you lose your 5 years worth.

> I apologize if this seems like a "dumb" question, but how would YOU
> handle this, what would the terms be, if you were me and wanted to buy
> a house from a friend?

There are no dumb questions.

-john-

-- 
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John A. Weeks III           952-432-2708            john@johnweeks.com
Newave Communications                         http://www.johnweeks.com
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