Deal Structure
I am a new investor trying to structure a deal. I have a property I placed a contract on anticipating a certain structure, however things have change.
Please provide advice. I am interested in learning about land trusts or different methods to control the property with little down. Here's the scenario.
Appraised Value - 112,000
Sales Price - 110,000
1st Mortgage (my financing) - 77,000
Loan Payoff (seller) - 73,000
Seller Carryback - 33,000
(The carryback originally was structured to be a forgivable loan)
I would pay closing costs and seller would net difference of loan payoff and my mortgage.
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I was all set to proceed when my mortgage lender called and said underwriting rejected the deal due to a 80% CLTV requirement. They're proposal is:
Mortgage - 77000
Seller Finance - 11000
Buyer Downpayment - 22000
( according to the lender the 22000 would be returned to buyer after closing)
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I don't have 22k to show. I still want to purchase this property. The sellers are flexible as long as they receive between 7-10k. I'm not clear how a land trust works. Can I refinance the property if it is in a land trust? Can I sell the property? Can I rent the property? What other strategies may I use to gain control of the property?
FYI, the loan is assumable, however, I can't qualify because I'm only 14 months removed from a BK discharge. Please advise.
appraised value $112,000
80% = 89,600
pay off is 73,000
sellers want $7-$10,000
If you can get financed at 80cltv what the problem?
payoff=73,000 + 7-10k to seller= 83,000...right?
am I missing something here?
The problem is coming up with the 20%. The lender wants me to come to closing with 22k (20%). I don't have 22k. The lender will only allow the seller to carryback (10%). I don't have partners. Am I missing something? Is there something I can do about the 22k that I'm not seeing? If not, are there any other options to control the property?[ Edited by HelloEveryOne on Date 10/25/2003 ]
in the first post you didnt mention the 10% cap by the lender on the seller carry back....
Sorry about that tid bit. Any suggestions?
This is only a wild suggestion bubba..
But borrow from credit cards, friends, or family IF you don't have 5k or so..
Offer 5k cash to the owner with this offer:
You take deed to the property (buy it) sub-2 you continuing to pay the existing mortgage with the owner taking back a 2nd for the remaining money due (which the owner is already open and willing to finance you on his equity it sounds like).
Once you have deed to the house, you could re-fi that bastard in a less than a year or sooner without some bullshit downpayment AND cap on owner carryback requirements by a lender..
And it is best to drop the property into a land trust if you want to hide it from the lender on the topic of deed..
Oh yeah on topic of 2nds, it's worth a shot but see if you can GET the owner to take all of his equity in a Prom. Note or at least part of it, thus technically giving you more equity in the property which will lower your LTV when you re-fi, you'd be surprised the owner might take 10k in a prom. note and the remainder as a 2nd against the property, and explain why, etc with the owner and be upfront on that.
As for insurance find a company that will work for you.. And be upfront, in detail with what you ARE doing and how it works.. I work with a major insurer and they have been quite cooperative with me, I have new policys in my name on my propertys without lender notification..
[addsig]
If the promissory note is not disclosed to the lender that is LOAN FRAUD and people go to jail for that.
What's best in this scenario? Sub2 or L/O?
You have an agreement with the seller to pay him $4K for his equity ($77K - $73). Why not just purchase the property subject to the $73K mortgage loan and $4K cash?
No lender involved and you only have to come up with $4K plus closing costs.
If you're going about it conventionally, just shop some more lenders. There are TONS of 100% CLTV. They're a dime a dozen. You're not married to this loan or this mortgage broker. Don't let him tell you what YOU need to do to fit his loan program. It's easier to find a new shoe than to change the shape of your foot, so to speak.
As far as a creative deal....
Take it subject to is a good idea (and a lot cheaper)
Get a private note from friends or family. Use a credit card.
Do a seller financed note with a baloon or a short ammoratization.
Take the deed on a lease purchase, hold it for a year, and then refi and cash him out.
Banks do "signature loans" for revolving lines of credit. If your credit is ok as well as your debt/income ratios, 33k is pretty easy to get. If they only give you $2000 then do it with a couple of different banks.
Talk to grandma about doing a HELOC.
Just a few thoughts.
One more comment.....
Realize that you're pretty much buying this property at FMV and there are NO margins if you're planning on flipping this deal.
If you're holding it as a rental, and the numbers work, that's a different thing, or if you have an exit strategy in place (Lease option with a buyer lined up) then it MIGHT work, but this is a tight deal.
Generally for flips (not including selling on contract, LO, etc) you want to get properties at no more than .75 cents on the dollar (ARV) to flip them.
Quote:
On 2003-10-25 15:36, hibby76 wrote:
One more comment.....
Realize that you're pretty much buying this property at FMV and there are NO margins if you're planning on flipping this deal.
If you're holding it as a rental, and the numbers work, that's a different thing, or if you have an exit strategy in place (Lease option with a buyer lined up) then it MIGHT work, but this is a tight deal.
Generally for flips (not including selling on contract, LO, etc) you want to get properties at no more than .75 cents on the dollar (ARV) to flip them.
Hibby76,
Thanks for the response. Originally, I had the deal structured to where the debt service on the property was revolving around the 77k 1st mortgage. With certain conditions the seller was willing to carryback 33K , essentially as a forgivable balloon loan. therefore, I would only be paying a mortgage on 77k with 33K equity. That's why I'm still interested in finding a way to get this deal closed. [ Edited by HelloEveryOne on Date 10/25/2003 ]
Quote:HelloEveryOne asks:
Can you explain your comment! I don't think I'm following you. The seller just wants 7-10k in cash. What's your suggestion regarding the structure of the deal. Keep in mind the 77k is a 70% ltv.
In your outline of the deal, you said you were going to purchase this property for $110K with a $77K mortgage loan and a $33K seller carried second that would be forgiven. You also said the seller has a $73K balance on his current mortgage loan.
If you follow your deal structure and give the seller $77K from your new mortgage loan and he then pays off his own mortgage loan, the seller has $4K left in his pocket plus the $33K second mortgage note he is holding. When the seller forgives that note, he is just left with $4K cash from the sale. You have a $112K property with a $77K mortgage loan and you are out of pocket for the closing costs.
I am saying to eliminate the new mortgage loan completely and forget about the $33K second loan that the seller will forgive. Just take over the loan payments on his $73K mortgage balance (the seller's loan stays in place, in his name) and give the seller $4K out of pocket. The net to the seller is the same in both scenarios, but when you take the property "Subject To" the sellers mortgage loan, you eliminate the lender intervention you are experiencing now.
If the seller now wants $7-$10K from the sale, you will have to restructure your offer to give more than $4K for his equity. Visit the Subject To forum for more information.