Hello Everyone,
I have very little in deposit for a house and have been hoping that there are still vendors out there who are happy to do vendor finance. I would be appreciated if anyone could share their experience and knowledge about vendor finance.
1.As a guideline, how many basis points in interest rate above the banks' standard variable home loan rate should I offer to the seller?
2. Do I need a special property lawyer to draw up the vendor finance contract/agreeement and do the settlement or just a normal conveyancer will do?
3. What would be the reasonable loan term to ask the vendor for?
4. Is there any traps that I (the purchaser) need to be aware of?
5. Can I ask the vendor to provide a periodic statement similar to the banks' statement?
Thanks.
JennySteve McKnight's books and others gives you an insight on this.
From what I've read in that:
1. Steve was offering finance at 2% above standard variable rate – higher for ex-bankrupts etc.
2. You won't need a special property lawyer, my solicitor who does the usual solicitor stuff does them. But the main thing is you want to find someone who has done vendor financing contracts before and a lot of them.
3.I think a standard loan term of 25 – 30 years may be doable.
4. A good solicitor should let you know about this. If the vendor defaulted on their side of the deal, then it would all end up in court I would expect.
5. You certainly can and I think in some states the vendor is required to provide this to you by law.
What is the possibility that say 3 – 5 years into the contract you can get traditional bank finance? I know some vendor financiers structure the deal assuming that the purchaser will pay them out in full after this time. Of course, doesn't have to happen that way but just to let you know what the other side might be thinking.
Bear in mind too that the two ways a vendor picks up profit on the deal is to sell you the property at a higher interest rate on the finance than he/she's paying and also increase their purchase price by 10% or so to you.
Hi Jenny
1.As a guideline, how many basis points in interest rate above the banks' standard variable home loan rate should I offer to the seller? Varies dependant on the Contract but most of the ones we have done have been set over the RBA Cash Rate rather than the Banks standard variable rate.
2. Do I need a special property lawyer to draw up the vendor finance contract/agreeement and do the settlement or just a normal conveyancer will do? Most lawyers would have no idea and is certainly a specialised area.
3. What would be the reasonable loan term to ask the vendor for? I assume you are looking at 100% finance so 25 years is not out of the question. Of course the Vendor can only say NO.
4. Is there any traps that I (the purchaser) need to be aware of? How well do you know the Vendor ?
5. Can I ask the vendor to provide a periodic statement similar to the banks' statement? The Vendor must comply with the Terms of the UCCC so certainly will need to provide you with regular Statements.
Richard Taylor | Australia's leading private lender
Thank you all for replying.
I certainly want 100% finance and 3-month settlement to help me save up for the stamp duty and other incidental costs.
However, I definitely don't want to pay higher interest rate for the full term. As Bootross mentioned, I would like the flexibility to repay in full once I've built up enough equity (20%) in the home which would then allow me to obtain finance from traditional sources. I estimate 3-5 years to get me paid off 20%.1. I will pay my Solicitor to prepare the necessary vendor finance contract. But do I have to pay the same to the vendor's Solicitor for preparing his documents?
2. If I repay the vendor's loan out earlier than the original term, will there be penalty?
3. Richard, how many basis points above the RBA cash rate for vendor finance?
4. If specialist solicitor is required, how much is the normal engagement fee for preparing the Vendor Finance contract?
5. Are there any other costs that I need to consider?6a. Is it right that my name would not be transferred until I repaid in full? If this is the case, then do I have pay Stamp Duty on Property Transfer and Mortgage Transfer when I first moved into the house (I assume that I can move into the house once the vendor finance contract is agreed upon)?
6b. If the above stamp duties are payable by me only when the loan is fully repaid, then will the stamp duties be based on the original price of the home (the vendor finance amount) or the price as at the date I fully repaid the loan (which would be a lot higher – well, I hope it would be).
7. Lastly, is it cheaper and more peace of mind just to pay for Loan Mortgage Insurance for 95% loan from banks? Is 100% loan still available?
Thanks.
JennyRichard will hopefully answer. But as for 6. a), yes you can move in and act as if you own the place (within limits!) once the VF contract is settled. From what I have read, the vendor retains the title on the property until such time as he/she's paid out by you, however your solicitor will place a caveat on the property to stop the vendor refinancing the property or selling it behind your back.
7. Banks are alot more wary after the Credit Crunch (which is basically what that means, everyone's too scared to lend money), so it's unlikely they'd offer 95% or 100% finance nowadays. Traditional finance, ie through banks, is cheaper than doing a vendor deal but cheaper finance is useless if you can't access it!
Stamp Duty is payable on the Instalment Contract price in accordance with the Terms of the Stamp Duties Act in your State.
In Qld it is payable 30 days after the date the Contract goes unconditional and prior to the date of possession.
Richard Taylor | Australia's leading private lender
Thanks, folks.
That should do me for now. I certainly know heaps more about VF than previously.
Jenny.
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