On an owner financed home is it legal for the owner add a clause stating that you can't refinance or sell the property for the length of the contract?

Answer 1

Yes. How could you RE-finance an Owner Financed home anyway? Think about it. You have your financing through an individual not a bank. Why would the owner want to change the conditions he set forth in the first place. Now, if you went to a bank and got a loan, you would be able to pay off the owner early. But this would not be refinancing. This would simply be purchasing. However, you may have to pay a penalty for an Early Payoff. READ the contract. And while I don't know if it is likely, I guess it might be possible that your contract forbids an early payoff. I've never heard of this happening, however. THIS may not even be legal. The clause preventing you from selling before the contract is fulfilled is just smart on the owner's part. He's protecting himself. Ideally, you should read it before signing, but apparently many people don't bother. Also make sure you understand it before signing. I cannot stress this enough. You should ALWAYS have an attorney look over a contract before agreeing to the terms. This is just common sense when you are making such a large purchase, after all. I'm sure many people will disagree, but in my opinion, if you can get a bank loan, do it. Owner Financing is a godsend for people with bad credit...who can't get a bank loan. But I'd rather deal with the hassle of a bank than having to deal with an individual for years. My husband and I have made a lot of money by renovating and selling properties. We've done owner financing, too. There are a lot of creative clauses that can be put in a contract to protect the owner: buyer is not allowed to make renovations (or even paint or put in new carpet) without owner's written approval; owner has the right to inspect the premises; buyer is responsible for insurance, taxes and repairs, and so on... If you agree to the terms in the contract - and by signing it this is what you're doing - then you are gonna be SOL if you find a legal clause you don't like after the fact. We financed a house for a couple with bad credit and insisted on a nonrefundable $10K downpayment - meaning if they changed their mind after signing the contract or if they didn't keep up their payments, they lost the downpayment and the house. (The $10K non refundable downpayment went towards to cost of the house if they honored the contract so it was incentive for the buyer - who wants to lose 10K - and a measure of protection for us, the owners.) Fortunately, for they managed to hang on until they could finally get a loan to pay us. Something else to watch out for: for a bank to approve a mortgage loan, the house must be appraised. If the house isn't worth the asking price, they won't approve the loan. With Owner Financing, the owner can ask for whatever amount he wants and if you don't think it's worth it, he may haggle, but he can also tell you to hit the road. We've sold $50K houses for $10K to $20K more than appraisal value. Oh, be cautious of balloon payments too. If you can't get a loan for $80K now, can you realistically expect to get one in 5 years (or whatever time is in your contract). Stick with a bank loan if you can get one. When the owner finances for you, he holds all the cards. If you can't get a loan? This is a perfect example of why it's important to maintain your credit.