Question.
Would this work with a seller?
Say for example a seller has a property for sale for $100k, they owe $80k. They want all cash because they want their $20k to buy a nice new car or something.
Could you have the seller hold back an 80% note, and get a mortgage for the remaining 20%? In that case, the seller would get all of their cash equity, and make money off the remaining balance that they would not have made if it were an all cash sale. The mortgage company would almost guarantee giving you the loan if you got it at 20% LTV. Although you would have to figure who would have first and second position. Wouldn't that proposition work?
Chase
It would work as long as the lender had 1st position, was ok with a 100% CLTV loan, and the seller was willing to take a second.
Problem is, your lender won't have a 1st position because what your suggesting is basically a SUB2, where the original loan (the seller's loan) will stay in place; The 1st position place.
If your example is a deal, ie a $125K property selling for $100K, then you could suggest that the seller's refi and THEN you'll take over payments. Might want to look in the subject to forum to gin more insight.
Roger
But wouldn't subject-to be giving them 20k and taking over their current loan? This is giving them 20k plus a "contract" or something. IF this is what subject to is then what is the difference between it and a contract sale?
Chase
In a contract sale (contract for deed, land contract, installment sale contract, etc), you agree to make payments to the seller, usually in the form of a loan (principle and interest payments) for a period of time IN ORDER TO obtain the deed. You have to fulfill the terms of the agreement to get the deed.
In a Subject 2 deal, you agree to make their monthly payments in exchange for the deed. You get the deed upfront. You own the property.
Roger
I don't think what are you talking about is possible. You are talking about 80 % LTV loan by the seller, and another 20% LTV loan by a lender. Unless you can find some generous investor, who does not mind giving you 20K second mortgage on the top of seller financing of 80K or you could get a partner to pay 20K to the seller, if this is a good deal. If you really want to buy this house, you will need to come up with money somehow.
To behonest with you, this deal does not sound so hot to me. Only 20% discount from the FMV! If you have to do some rehab work, it will cut into your profit, and what if you will have to sell this house below the FMV (that happens most of time). Then you are looking at a very small profit.
You dont state the value of the house. 95% of the time I don't get involved unless there is equity left over for me regardless of what kind of terms you work out. Your lender will also want you to have equity in the deal, and your suggestion wouldn't make it becuase they have a note that take 1st position and personally I don't know of a lender that will take 2nd in the structure you suggest.
Sorry, this was a fictitious scenario i just made up to ask about financing. There isn't a house. It makes sense that theres no way a bank wouldn't give a 2nd for 20% of the purchase price, I was just wondering if they ever did it. The only reason most sellers want cash is because they want to get their equity out. What if you paid a seller all closing costs to refinance and retrieve their equity, then buy on contract? Wouldn't that satisfy many sellers? I guess that would only work with FSBOs because there wouldn't be the $$$ left over for realtors commissions.
If you took out a 20% note gave to the sellers...you'd be making payments on that 20% to the lender... + assuming the 80% 1st position note.. be like buying the property for fair market value if it's worth 100k, I understand this is a hypothetical scenario.
Keep thinking, it'll come...
MT
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