Financing Question with Seller-back Mortgage

This used to work in the past, but the banks will not go for it anymore. Because you will have nothing to loose if you default. With the bank only financing 80% they can't make you buy PMI, and the 2nd lien looses out also.

Jim Kendrick

With all due respect if I wanted to hear that it couldn't be done I wouldn't have posted this question. I am looking for a creative workaround such that the deal like this can be done. I hear there are similar ways to doing this such that the bank would allow it, I just need to know what they are.

A partner and I ran into a somewhat similar situation a while back, here were the specifics.

The seller stated he would give us the 20% ($90K)to be deposited in our bank. That way when the time came we could show the Mortgage company that we were in fact committing 20% of our own money to the deal from one of our banks. Technically this looks like the $$ is coming from us, which it is. He would then hold this "second mortgage" note @ 6% and we would pay him back directly/monthly. The deal fell through for other reasons beyond this but that was the only way that we were going to facilitate the deal and he agreed to it intially. The only thing with my deal was that this guy had $90K sitting around to give us directly. Not always the case. So maybe see if they have the 20% in cash and the deal may work. Good Luck!

The only problem with that is that with all the new regulations they want proof of were the funds came from. Some times they want to see bank statements back 6-12 months.

The only way I can think of is to go the PML way then refi after 90 days.

You can do the 20% and back it by something OTHER than the RE you are buying itself; ie a car, boat, RV, land, other property, furniture, jewelry, electronics, etc. That way, it is not directly tied to the RE itself. HOWEVER, you will still need to find someone to finance the loan that doesn't care about how long the funds have been in your account; so you will need to find a lender that doesn't look at the seasoning (amount of time you've held) the money in your bank account, or the seller can cosign on the 1st mortgage (there basically is no such thing, cosigners are just other parties on the note).

That's what I can think of at this time. I'll let you know if anything else pops up

This also worked in January of this year. If you have someone you are very close to with good credit that has a bank statement showing the amount you need, have them do the actual financing of the first. (we did this with our inlaws). Do the loan for the financing backed by something other than the RE and then redo the loan after the 1st is secured and have it backed by the RE in a 2nd position. Assume the 1st loan by making the payments yourself. Whatever you do, do not EVER default, so only do this if there is no way you will ever miss a payment.

You are correct in the fact that you use to be able to ask a bank for an 80% loan if the seller was holding the other 20% becuase the banks felt this gave them a safety net. Unfortunately, they found out that they were wrong. They now want you to have skin in the game so you can't play a game called "strategic default". In other words, they want to know you have something to lose.

Tammie, above, has the simplest solution. If you have something else to use/sell for the 20%, then follow that course of action if you can. Of course, as you get bigger, you can use a blanket endorsement from the equity in your other properties as your 20%. But until you get to that point, your options are truly limited in this environment. (And a word to the wise: if you have the seller give you the down payment so that you can merely use it to pay the 20% as a ruse against the bank; be prepared for the consequences if things go against you)

In the meantime, you may want to consider a PML or a HML as those are the easiest avenues of action.

You could also do a lease option for the property and then resell it to make your profit in that manner.

You could also do an assignment.

"The seller stated he would give us the 20% ($90K)to be deposited in our bank. That way when the time came we could show the Mortgage company that we were in fact committing 20% of our own money to the deal from one of our banks."

that's basically fraud

....it's not basically fraud, IT IS FRAUD!

LOL

This week I was applying with Bank of America to qualify for Auction.com. They required 2 months back for all financial statements. The mortgage broker said that they go back two months specifically to check on any irregular deposits. I had one deposit that was a repayment of a loan I made to a friend, about $4,000, and they considered that to be suspicious. The $90K might raise an eyebrow.

Perhaps you can buy this property on a note from the seller. (See Talmadge Bells section in The Edege 10). Perhaps you and the seller could create a 80% first note payable to the seller and a 20% second note payable to the seller. Record them, then sell or refinace the 80% first note in a year or two?

Or, Is this a property that you are going to occupied as your primary residence? If so you can get in with 3 1/2% down or 5 % down. If it is a investment property will the lender allow a 5 or 10% down and a 10 or 15% seller held second. Check with different lenders and see how much of the seller held second they will allow. Different lenders and banks will have different answers. Example if they will do a 80% first morgage for you and allow the seller to carry a 10% second. Then you have to get creative on the 10% down payment. They may allow a gift (usually from a family member). Do you have anything to sell for the 10% down, can you get a unsecured loan, etc.?
Think of this like eating a elephant. Sound to me like your glass is 80% full (meaning you have 80% of your financing figured out). If this purchase is a deep enough discount perhaps you can find a partner for the down payment / the 10 or 20%?

Also, you may be wondering how it is Fraud. It is not fraud until you sign documents at closing stating that you do not have any side agreements with the seller. The closing attorney / title company will probably have a document from the 80% lender making you and the seller sign a form stating that they are no side agreements or any agreements from this transaction out side of the clsoing documents. The 20% / 90k from the seller would be a side agreement. If you signed those documents you and the seller could be charged with fraud and more. I agree the 80% lender will check your bank statments and not give you credit for a undocumented source depositing 90k in your bank.

I tried to stay positive & hope that helps.

Best Wishes,

You could do the 1st with a HML (expensive way to do it!) and refi to a bank or lending company that has no seasoning requirements. Because I finally did a HML I found that many of them do not care if the money in your account is seasoned or not. I was upfront about where my downpayment came from and they said they did not care how long the money was in my account so long as I had the money. Many HML are investors themselves. Now, I've only done one HML, maybe others have more info; but in the course of getting a HML I called MANY of them and asked the questions about seasoned funds.

But, make sure you have a bank that can do the no seasoned financing first!

Double post! Not sure how that happens!

I would suggest to use a hml or pml. and refinance it with a credit union that does real estate. especially the one in the area you are buying the property at. If you use the major banks they are more harder and stricter. Zion properites has a good point. Also look into people who have Ira funds who can bank roll the whole investment.

Thank you all for the feedback.

Would it be possible to use my funds(I have enough seasoned funds to put it towards the 25% DP) and then after closing have the seller reimburse me for the down payment(from his funds at closing). Would this be considered outside dealing on the property?

If you use your own money for the deposit It should be ok. After the dust settle the seller could give you a loan, Property as collateral,but you should realize that after he unloads his house he may want to disappear.

Jim Kendrick

I just realized another point you asking, no way will that happen at the closing table. You will have to trust that he will follow threw.

Jim Kendrick

Well we can draft up another contract so that way he is obligated to if and only if the property closes. So in effect we will have 2 contracts, one as the purchase agreement and the second as a binding agreement contingent on the settlement of the first. I can also put up a collateral, say another property that I own, and have that secure the financing.

What do you think, will that work? I want some feedback before consulting an attorney.

That will work but no need to put up other property, Unless you plan on him giving you mortgage on the property you already own. If that's the case have him do that now.

Jim

Howard

Now that I have a fresh cup of coffee I can think a little better. Having that other property solves your problem.You can write up the deposit with a mortgage note from the property you already own. Now you have a 20% equity stake in the property you want the bank to finance. That should fly if it was the only hold up with the bank. Let me know how it works out.

Jim

Thank you for all your help so far. Just one more question. Does the other property have to have enough equity, equal to or greater than the 20%, to cover the down payment?

I can see several working options and I do wonder about your potential equity. However I feel that a portfolio lender is a must, for a start you said 20% of the financing and not the price. I think there is a pretty simple solution but too much to type here. If you want to discuss this via phone PM me.
Joe

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