Qustions About Carry Back Mortgages
When you are creating a seller second for the downpayment on a property, how does the bank lok at that usually or does it depend from lender to lender?
Second do seller seconds need to have an interest rate applied? I mean to say can I make it 0% if I wanted to?
Third do they have to be for a particular amount of time or just whatever the buyer and I agree upon?
Finaly I guess for those of you that have done them in the past any advice or pitfalls to avoid when doing this type of financing?
Thanks
Joe
[addsig]
Joe,
You are asking a lot without providing any specific context.
1. Some lenders care a lot about how much money the buyer is putting into the deal. Hence they will care about a second. The higher the LTV on the first the more the first lender will care about the second.
2. You can agree any interest rate you want (including zero). If you go below a minimum, the IRS will impute an interest rate and expect taxes to be paid on the inputed rate. The idea is you can not hid what should be interest by raising the principle and agreeing a zero rate. Money cost money when paid over time.
3. The time period and payment schedule is also anything you want it to be.
Pitfalls? Many but not that difficult to deal with. The largest issue is circumstances might change the holder of the note might want out. If the note has reasonable terms and conditions then there is a greater chance the note can be sold for a reasonable discount. If the note has odd terms or conditions then the note will be worth a lot less to a note buyer.
Backing up a bit... what do you want to accomplish?
John
[addsig]
Basically I am trying to find a legal way to get my buyers into rental properties with no money out of pocket
I would be very leery of setting up a 0 down deal to sell one of my properties. My personal feeling is if the person is putting no money into the deal and you are carrying back paper, they will have less committment to making the payments and be more inclined to default on the loan. I would want to make sure that the buyer has at least some money at risk of losing if they don't make their payments.
That being said you can still structure a transaction that is favorable to the buyer (e.g. 3 - 5% down + 50% of closing costs).
You may want to look into Bill Gatten's NARS PACTRUST option. Do a web search on Bill Gatten to learn how putting the property into a NARS PACTRUST could work for you. I am not an employee or paid endorser of his program, but I do think that it would possibly work in your situation as an alternative to carrying back paper. Good luck.