Is it possible for a home owner to offer his property for sell with owner financing even though they have a mortgage on the property? How does this work?
Yes its called a wraparound mortgage . Any knowledgable attorney or title company should be able to help you. You could also consider a contract for deed. A CFD is a contract made between a buyer and a seller which the seller retains title until the buyer makes a certain amount of payments. An attorney should know all about the CFD ,also refered as installment sales contract or land contract.
Ok here is the situation...My mom owns a home (second/investment home) that has appraised at 60k but my mom has a first mortgage on the property for 30k. My sister wants to use the equity, but does not want to buy the property the conventional way because of her debt ratio that would be reported to the credit agencies. Can my mom owner finance the property to my sister for what she owes on the first mortgage 30k, then can my sister take out the equity in the property? Basically gifting my sister the equity. Are there lenders that will lend equity lines on situations like this to my sister? When will my sister take title to the property, immediately? Any knowledge is helpful.
Refi and loaning money in this case would be the best way.
In general, seller-financed note can be created only throughout a sale process, thus your mother would have actually to sell the property.
If she doesn't want to stay in the property and actually wants to sell it, you always can do it seller-financed and the maximum FMV, with having your note bought simultaneously at the closing.
I don't believe the Note Coach's suggestion would be the best fit here, though of course I agree with those strategies most times, because I sell seasoned and unseasoned owner paper.
However, in this case, I believe that if your Mom sold via Contract for deed or land contract, this would allow your sister to get into the property WITHOUT your Mom having to retire the underlying lien. Then, your Mom can take a home equity line out, since sis sounds like credit is shot and sis would not have the deed via this strategy (Mom keeps until installment contract is paid in full), and then Mom just gives her the equity in the form of cash via gift.
Selling to the sister with owner financing and selling the note at close will likely not work because sis' credit profile is in such bad shape. Note buyers buy good cash flow investments, not new notes with a high risk for nonperformance out of the gate.
The note would not have as much value and not to many investors are willing to purchase new notes at high purchase value.
If your sister would pay on the note for 8-12 months with proof of payment by way of canceled check the notes value would increase along with a 3 or 5 year balloon also make it more favorable.
[addsig]
I understand Dave's point of view as he sells RE-backed papers. But I am not totally agree with that view, may be just because I look at this from the opposite side as I am buying such papers.
First of all, what is important for the original question = although the paper can be created, it can be done either from loaning the $$$ first, creating the paper OR from the property sale.
If you just create a paper by loaning the money, the actual cash transaction has to happen first. And in this case, it is true that no one will give you the price unless you can prove you mom actually has transferred $$$ to you sister and your sister made some monthly payments.
But, if the paper created throughout the property sale - in this case the paper can be bought SIMULTANEOUSLY, at the RE closing table. The price in normally given in advance.
In all cases, if considering sale of a private note - you always should remember that no one would be buying those at par ( = at face value of the paper, if simo, or at the pay-off principal balance, if seasoned).
The discount would depend on:
1. Type of property, securing the instrument;
2. Paper terms;
3. Credit wothiness of the payor (typically FICO should be above 500, but pricing is always better with higher scores);
4. LTV and ITV restrictions for different instruments.
The bottom line, if you manage to create a paper - it can be sold, but not at the face value of such paper: you should expect a discount, which, depending on who it will be buying from you, can be either in % (always better for note of your size) in in flat $$$ fee (those deal might not be best for your situation.
Considering the possibility of the discount, the best deal yet either to refi or get equity line and gift to your sister.
Hope this insider info helps to assess all of your availabel options.
[addsig]
the seller continues to pay the existing NOTE holder while the new buyer pays the seller.....
Document everything with the county.
or FHA & VA assumable mortgages can be taken over by buyer and arrangements can be made with the seller for paying equity.
Yes its called a wraparound mortgage . Any knowledgable attorney or title company should be able to help you. You could also consider a contract for deed. A CFD is a contract made between a buyer and a seller which the seller retains title until the buyer makes a certain amount of payments. An attorney should know all about the CFD ,also refered as installment sales contract or land contract.
Ok here is the situation...My mom owns a home (second/investment home) that has appraised at 60k but my mom has a first mortgage on the property for 30k. My sister wants to use the equity, but does not want to buy the property the conventional way because of her debt ratio that would be reported to the credit agencies. Can my mom owner finance the property to my sister for what she owes on the first mortgage 30k, then can my sister take out the equity in the property? Basically gifting my sister the equity. Are there lenders that will lend equity lines on situations like this to my sister? When will my sister take title to the property, immediately? Any knowledge is helpful.
Why not have Mom just refi the property and when it is done, give your sister the house Subject to.
Mom can also loan your sister the cash she pulls out of the house at the refi.
John (LV)
Mom has bad credit and no job!
Refi and loaning money in this case would be the best way.
In general, seller-financed note can be created only throughout a sale process, thus your mother would have actually to sell the property.
If she doesn't want to stay in the property and actually wants to sell it, you always can do it seller-financed and the maximum FMV, with having your note bought simultaneously at the closing.
Alexander
The Note Coach
I don't believe the Note Coach's suggestion would be the best fit here, though of course I agree with those strategies most times, because I sell seasoned and unseasoned owner paper.
However, in this case, I believe that if your Mom sold via Contract for deed or land contract, this would allow your sister to get into the property WITHOUT your Mom having to retire the underlying lien. Then, your Mom can take a home equity line out, since sis sounds like credit is shot and sis would not have the deed via this strategy (Mom keeps until installment contract is paid in full), and then Mom just gives her the equity in the form of cash via gift.
Selling to the sister with owner financing and selling the note at close will likely not work because sis' credit profile is in such bad shape. Note buyers buy good cash flow investments, not new notes with a high risk for nonperformance out of the gate.
Hope this helps. Best, Dave
The note would not have as much value and not to many investors are willing to purchase new notes at high purchase value.
If your sister would pay on the note for 8-12 months with proof of payment by way of canceled check the notes value would increase along with a 3 or 5 year balloon also make it more favorable.
[addsig]
I understand Dave's point of view as he sells RE-backed papers. But I am not totally agree with that view, may be just because I look at this from the opposite side as I am buying such papers.
First of all, what is important for the original question = although the paper can be created, it can be done either from loaning the $$$ first, creating the paper OR from the property sale.
If you just create a paper by loaning the money, the actual cash transaction has to happen first. And in this case, it is true that no one will give you the price unless you can prove you mom actually has transferred $$$ to you sister and your sister made some monthly payments.
But, if the paper created throughout the property sale - in this case the paper can be bought SIMULTANEOUSLY, at the RE closing table. The price in normally given in advance.
In all cases, if considering sale of a private note - you always should remember that no one would be buying those at par ( = at face value of the paper, if simo, or at the pay-off principal balance, if seasoned).
The discount would depend on:
1. Type of property, securing the instrument;
2. Paper terms;
3. Credit wothiness of the payor (typically FICO should be above 500, but pricing is always better with higher scores);
4. LTV and ITV restrictions for different instruments.
The bottom line, if you manage to create a paper - it can be sold, but not at the face value of such paper: you should expect a discount, which, depending on who it will be buying from you, can be either in % (always better for note of your size) in in flat $$$ fee (those deal might not be best for your situation.
Considering the possibility of the discount, the best deal yet either to refi or get equity line and gift to your sister.
Hope this insider info helps to assess all of your availabel options.
[addsig]