Real Estate the Ramsey Way - Should We Offer Seller Financing When Selling Our Home?

Episode Date: December 16, 2024

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate homeownership with confidence. We're moving on to Eric in Boise. What's going on, Eric? Hi, Jade. Hey, George. Thank you so much for taking my call.

Sure. How can we have? Yeah, so the situation we're in, I'm in Boise, Idaho. I was a baby step seven, I guess grad, and purchased a home and paid it off. Awesome. And, yeah, I'm in, I'm 31. My wife's 33. Wow.

You guys are super weird. Yeah, I know. We're definitely very weird. And we're having our first baby, so we decided to move into a home that was a little bit bigger, had a little bit more land to it. Cash on that one, too. or there's a mortgage? Well, so what we did is we took a mortgage in order to just to get the home because we didn't want to do a contingent offer because it was pretty competitive here. So our plan is we're now currently selling our previous home and then we're going to take all that money and roll into the mortgage and get it.

So it'll be a very temporary mortgage. Once you sell, you'll pay off the mortgage and move on. Exactly. Yep. That is our strategy. That's what we're doing. Not mad at it. So what we have found out, we've had our helm on the market, I think, for two weeks, three weeks now.

And we've had a couple of people who are interested. And our realtors told us that they've come back and asked us if we would be interested or would offer owner financing or owner carry loans. And I was just curious from the Ramsey Solutions perspective, are there any terms? terms and conditions where that would be a wise thing to do, or is it just a hard, no, we're not going to, we shouldn't be considering. I'll tell you on the seller side, if you're the one taking on the risk, you're going to loan these people however much, you know, what are we talking? $300,000?

Well, that's what I've asked our realtor, what are the terms or what have they been asking for? And he said, really, it's just kind of up to us for what we would say, what we would be willing to offer. And they're trying to do this to save on interest rates right now? What's the upside for them? That would be, I don't have those details. I'd be curious about that.

From what I've read into it a little bit, it sounds like usually people who are looking into owner-carry loans or individuals who can't get approved from a loan from a bank. And that's a red flag for me. That's the only red flag I mean. If they didn't qualify for traditional financing, it's a hard no for me. And even then, personally, the Camel family would not be willing to take on that risk of someone owing us hundreds of thousands of dollars because if they default,

you've got to foreclose on that home. So all the risk is on you instead of the lender. Yeah, I see. Yeah, and that's where I was thinking where because we own the home, is it if we were able to create some terms where we could say, hey, we want a larger down payment. Because, I mean, the idea of behind us selling this home is that we want to get rid of our mortgage, so we don't want to carry that any longer. and then having a short-term loan, something like five years or whatever,

and you still, I guess, in that case, would have the, you know, like a bank you own the home, and if they don't pay it off, you get the home back. What's the house worth? Like, what are you selling it for so that we know what the loan would be? Because if there's a couple of things that don't make sense to me, and I'll tell you what they are, and then if you explain it, maybe you can help. But I'm thinking, okay, these people weren't approved for normal financing. Normal financing is typically a 15 or 30 year mortgage, right?

You put 5% down, whatever. And then you're talking about them having to put more down and having a shorter term. Like you said a five-year term. So I'm trying to understand why you feel they would be able to do one that is far less conventional over the other, which is far more conventional. I guess, well, yeah, that's exactly like I would be looking in the term. So the home, we're asking price right now is $369,000. Uh-huh. And so for us, I wouldn't be comfortable with like a zero down, 1% down, 2% or

you know, anything low. I mean, I would say probably at a minimum 30, 40% down. Do you think, or? Do you know that they would have that money? I have not heard whether they would be willing to do that or not. My assumption is probably not because if they would, you know, if they went through a bank, they'd be able to do something, like you said, anywhere between 5 to 20 percent. And so I haven't heard any kind of terms along those lines.

But in my interest, that's where I would ask for a larger down payment, shorter terms. And so that's where I would think that it would be less risky on our end. Well, here's the thing. Here's the thing. You're not desperate. And I think that if you were in a situation where there was desperation or even in a non-desperate situation, if we were talking about a buyer and you knew this to be true, and maybe it was like your brother.

I don't know. There could be a situation where you might consider this, but you're not desperate. The house is paid off. You're not floating two mortgages right now. I mean, George. Well, in the other piece of this, Eric,

you've got to realize the opportunity cost of you not selling the house, taking that money and paying off your mortgage or investing it. Yeah. And so there's a lot of things that I don't think we're totally thought through. And I would also go,

are there other buyers that are just going to go through traditional financing because there's not really upside here for you. Yeah, because that's where I was thinking, the terms that I would consider it an upside would probably be shorter loan period, higher interest rates than what a bank would be offering,

higher down payments. And that's where I would look as if I was a buyer, why would I take that? Exactly. And you're not going to give them a lower interest rate than they would get on a traditional mortgage. That wouldn't make sense for you to take on that risk. And at that point, that worries me

that they'd even be willing to take that deal. Yeah. Typically, this would be something that you would do maybe between, I mean, and I'm not recommending this by any means, but maybe it be something you do between friends or family where you're trying to, the intent is to give them a better deal. Maybe it's family property or something. If you're the one buying the property and they wanted to do owner financing, then we would go, okay, well, the risk isn't on you. And as long as you're getting a deal out of this, then go for it. But I just don't see enough green flags here to move forward. I would wait and find a buyer who's willing to go the traditional route. Yeah. Yeah, okay. Yeah, that makes total sense. That kind of gives me, that was kind of my gut feeling towards it. And yeah, that definitely helped kind of clarify and give me a clear picture on what it. Because the only thing I would really be taking is probably a deal that somebody else wouldn't want to take anyway. That's right. Yeah, we can be generous in other ways. Let's not do that with this many zeros on the end and put your financial future at risk. And I love this quote, the person with the most patience, information, and options wins. And you guys are in a place where you're not desperate. You've done things the right. right way. And so let's just move slow. And when the offer's right, you're going to say confidently,

yes, instead of a, should we do this? I don't know. It could be risky. Thanks for the call, Eric. Sarah's in Fort Collins. Hi, Sarah. How are you? I'm good. How are you guys? Better than we deserve. What's up? Okay. So my question is, I'll give you the question. I'll give you in some context. My question is whether or not we should look at buying a home next spring, probably a little after the new year, or if we should continue to rent. So we sold both our primary home and a rental property in January of this year to help us get out of debt faster. The original plan was to rent for the next four years while my oldest is in high school, and then we were going to move out of state. But now we're wondering if it would be better to

buy a house next spring after we've saved up a down payment and just live in the house for the following three years. The oldest graduates from school. Yes. He will be a fresh this upcoming fall. Yeah. And so you're willing to move the other kids, but you're not willing to move the oldest? Yes. So we would have a very tight window between the oldest graduating. The reason we're not moving before is because I have shared custody of him, and we can't move.

Oh, and so the other kids are with your current husband, and he's with a former? Correct. I, okay. Now, now logic is kicking in, okay, because I couldn't figure out why we had to be, why this guy was so special that we had to wait on him, but no one else. But now I get it, okay, it makes sense. Well, he thinks he is. Well, I know, but he's a freshman, so that goes with the territory. Now I get it, though. It makes sense. What you're saying is very logical. Okay. The answer is a math formula, and what we've got to try to guess at is what we think houses are going to go up between the time you buy it. and the time you sell it, okay? And Fort Collins, Colorado is a good market. I know the market. It's a strong market. And my guess is that if you said, okay, a home in this neighborhood,

talk to a local Ramsey trusted real estate agent and say, if we were to buy a home in this neighborhood, what would we think the appreciation would be per year for three years, percentage-wise? is this going to go up 8% a year, 10% a year, 4% a year, what do we think it's going to go up? Okay? And they can actually provide you hard data on that.

You can pull up a statistics in the, a statistic in the MLS, a real estate agent can pull this up for you. It says in this neighborhood, the average appreciation for the past five years has been X percent, for the past 10 years has been Y percent, okay? And you can use something like that. that percentage. Now, obviously, the last five years have been wacky, last 10 years have been wacky. It's not a normal, quote, real estate market. Agreed? Agreed. Yeah. So, but, but you can, so you

temper this information with the knowledge that hopefully the next five years is not as wacky as the last five years. So, um, uh, but you look at that. And the second piece of data that you could look at is in that neighborhood for the last five years or four years or three years, what has been the average days on the market, D-O-M. Okay? Okay. So let me give you two possible math examples to show you how you would use these numbers. All right.

So you say the math, because they usually kind of correlate, okay? If the houses aren't going up much in value, you probably take a while to sell them, agreed? Agreed. It's not a super hot market. So you might hear like a 270-day average days on. the market, nine months average, and it only goes up 2% a year. If that's the number you get back, you don't buy a house because it's not going to go up enough to even break even with expenses

when you sell it after three years. Follow me? That makes sense. Yes. And it's going to be hard to sell. But the other side of that equation is, what if it said, okay, average days on the market is eight days. This is a white-hot market. And the appreciation rate, has been 12% a year. Well, in three years, that's 36%. Right? Yeah. Well, you're going to make some money,

and you're going to be able to get out of the house. That market's super high. You're probably not going to be all the way on either one of those spectrums, but that's how the formula informs you whether or not to buy. Is the house, it needs to go up during the three years at least 7% a year. Okay. That's going to be 20%, and then you're going to have expenses that are going to be 10 to 12 when you sell the house.

Yes. So then you're going to make a little money, but if it's not going to go up at least that much, you're not going to make money and you're going to wish you didn't do this. You'd be wishing you'd rent it. You see how I did that calculation? I do, yeah, and that makes total sense. Okay. And you could call one of the Ramsey trusted real estate agents off our website.

They'll help you do that right now, knowing that maybe they can help you buy a house next spring, and you can tell them which neighborhood you're looking in. Perfect. We actually have one we used to sell our house. Oh, okay. Did they do a good job? Yeah, they did amazing. Good.

It was such a smooth process. Since we sold two at one time, it was a lot, but they did awesome. Very good. Well, that's what we want to hear. It's always dangerous to ask that on the air. No, it's not, because we vet those people so hard. We know that they're amazing. Yeah, these real estate agents are amazing that we have in our system.

So, folks, that's the thing. If you're moving into, I'll tell you where that formula comes up for a lot of you out there, is if you're military and they move you every two years, that just means you're not buying. Because when you run this formula on a two-year, very few markets are going to make sense. It means you're renting.

If the military is going to move you every two years, you're probably a renter. And that's okay. Just be piling up cash to buy when you get out of the military.