A place to live...HELP! - Posted by Charles

Posted by Charles on March 10, 2001 at 24:37:39:

Thanks for your help.

A place to live…HELP! - Posted by Charles

Posted by Charles on March 09, 2001 at 22:23:30:

I found a 3BR/1BA FSBO in a neighborhood of older houses (read solidly built with real walls and hardwood floors) for $44,500. The house was built in 1962. The house is paid for and the woman who is selling it bought it new with her husband in 1963 (it was a new development back then). He died 6 months ago and she has moved out into the country with her daughter (I think).

The asking price is based on an appraisal (that’s what I was told) and is about $10,000 less than comparable houses on the street (I checked) because it is unprepped for sale (garage full of junk, walls not repainted etc.) and has a few dings (needs some tiles in the bathroom, has a hole in one side of a hollow wood bedroom door, stuff like that…). Otherwise the house is solid as far as my untrained eyes can tell. Also the house has a big fenced in backyard and the neighborhood park (a nice family friendly place) is in viewing distance from the front porch.

I’m married with 3 boys ages 9, 8, and 3 and we live in Jerry’s World (a North Carolina trailer park). We need this house to live in and I don’t want to rent any more. My credit sucks partly because I’ve been living on the edge financially to allow my wife to stay home with the kids, partly because my wife has been in and out of the hospital over the past 5 years, and partly because I’ve tried some get rich quick deals that only got me deeper in the hole. On the other hand the lady likes us alot because we’re “good christian folks” who act as responsible parents (we homeschool).

She is positive toward the idea of letting us live in the house and work toward an acceptable down payment at $600/mo intervals (100% towards down payment). At $45,000 (for easier math) that’s puts us at 10% down after 7 months, 15% down after 12 months, 20% down after 15 months, 25% after 19 months, and 30% down after 23 months. She would most likely take less for the house (I’m thinking $40,000) which would make LTV better when I try to get a bank loan. Also the house which is 960 square feet has an additional 240 square feet in a 12 by 20 attached garage that could be turned into a den.

Question 1: How much value would turning the garage into a den add to the appraised value of the house?

Question 2: Would it be better to do a lease option or to ask her to do a personal mortgage? Would I have more pull with a bank if she did a personal mortgage at say $600/mo no interest on a 24 month balloon versus the same numbers on a lease option? Would I have any pull with a lease option?

Question 3: Would a bank loan money for a home improvement (garage to den) based on what the house would be worth after the improvement?

Question 4: Can I do all this without a lawyer, and if not how can I minimize the financial outlay on this deal and whenever down the road I deal with a bank/finance company.

Question 5: Do I need a course on the basics of real estate transactions?


Re: A place to live…HELP! - Posted by JohnBoy

Posted by JohnBoy on March 10, 2001 at 18:12:52:

BTW, if you purchased this at $44,500, make payments of $600 per month for 2 years and got her to agree to carry the balance at 7% interest whereby keeping those payments at the $600 per month income she was getting, it would take you 5 more years to pay this off where you would own this property free and clear!

Purchase price of $44,500 minus 24 payments of $600 = $30,100 principle balance due in 2 years.

$30,100 at 7% interest amortized over 5 years would make your payments at $600 per month!

In 7 years you will own this thing free and clear!!!

The only added expense above the $600 payment would be the taxes and insurance which shouldn’t be that much on a property of this value!

Hurry up and buy this thing before you miss out on a great deal!

Re: A place to live…HELP! - Posted by JohnBoy

Posted by JohnBoy on March 10, 2001 at 18:02:31:

If you can get this on a seller finance deal with no interest for 24 months then that would be the best way to go. Getting refinanced later would be much easier on a seller financed deal vs. a L/O. On the other hand, if she won’t go the seller financed route with no interest then in this case the L/O with the whole $600 going towards the purchase price would be better. That $600 is much more valuable than paying all interest on a seller finance deal. You gain a ton of equity in a very short period of time.

The main thing you need to do during that two years is clean up your credit problems. This means, start making sure you pay all your bills every month on time! This will play a major role in getting a new loan in two years!

If this were me, I would try to structure this first by setting this up as an owner finance deal where she acts like the bank carrying a mortgage. This would mean she carries a mortgage and a note that gets recorded against the property and you get the property deeded over to you! You OWN it at this point! Instead of structuring this where the balance is due in full after two years, requiring you to get a new loan…set it up where the payments are interest free for the first two years and then after that you will pay 7% interest amortized over x number of years on the remaining principle balance due at that time. This way, should you run into a problem with getting a new loan you still keep the property and provide her with a nice monthly income for many years to come. That would pay her a better monthly income than what any bank would pay on her money and she is WELL secured with the property being the collateral on her money!

If she doesn’t go for that then I would go for the contract for deed route. This means she would be selling to you on contract where the deed remains in her name until you pay her off. You don’t OWN the property at this point, you only have an equitable interest in the property. The thing you need to do under this arrangement is to make sure you get this set up properly to protect your interest in the property in the event something happened on her part that caused any liens to be filed against the property. If that was to happen you would have to satisfy those liens in order to get clear title when you go to refinance. Recording a performance mortgage against the property could protect your interest.

If all else fails then I would go with the L/O getting the 100% rent credits for two years. This will allow you excellent borrowing power at a low LTV (loan to value) to make it easier to qualify getting a new loan.

Assuming your numbers are right with the property being priced $10k under market value and with her willing to give you 100% of that $600 per month going towards principle, I would hurry and get this thing under contract in a heartbeat! Don’t sweat all the small stuff and just get a good “real estate attorney” to handle all the paper work! This shouldn’t run you more than $300 for the attorney and you will sleep better knowing you’re properly protected.

Now go get this thing signed up before someone else ends up getting this!


What are you doing? - Posted by Earnest

Posted by Earnest on March 10, 2001 at 10:20:20:

Are you buying a home for your family, or investing? If you are buying a home for your family and this place meets your needs . . . .

100% of montly rent or fee towards downpayment is usually a great deal. If whe will go for that and the place meets your needs then go for it.

Why are you thinking abot home value if you make repairs? If room additions are needed just for you to move in, I wouldn’t do it. You certainly don’t want to spend a nickle on it until its deeded to you. Hopefully not; it would be stupid; it would make you dependent on her good will, and she could manipulate you with it. You don’t want to improve the propery on your money and have the owner back out or raise the purchase price.

You said the property is in good condition, so you don’t have to make any repairs until you are ready: when its in your name, and for the best time financially. this puts you in the driver’s seat. So lenders can come begging to you. Not the other way around. You won’t need to make improvements until you can get a deal that suits you.

Be sure to nail down the price before you go for anything, and, yes, of course, do it all in writing. Use a lawyer for sure. You don’t need to study real estate unless you plan to do more investing.

If you’re not sure of your financial situation, you can always get a “prequaification” for free at many lenders. This would give you some information before you commit to a lease option or a balloon-tyoe loan.

Remeber that your only risk at first is the monthly payments. You will be able to walk away at any time. Since you would be in the home. What are yor coasts now. Try to contstruct terms that makes the differnce between your present costs and the new costs if you were to go for the place.

WOW ! ! ! - Posted by RobH (MI)

Posted by RobH (MI) on March 09, 2001 at 22:51:10:

With that much info, and you still don’t know what to do…

Analysis Paralysis.

RobH (MI)

Re: A place to live…HELP! - Posted by Charles

Posted by Charles on March 11, 2001 at 11:06:53:

Thanks a bunch Johnny,

It never occurred to me to ask her to carry the note full length because I’m automatically thinking 15yrs or more but you’re right that with me willing to pay $600/mo we could do the whole deal between me and her and have it done and over with in a relatively short period of time. Also, I get the distinct feeling from the last time I talked with her that she’d take $40,000. She says her major concerned is that the house go to nice family who will enjoy living there and she seems very willing to do anything she can to help us. I’m familiar with amortizations and such because I own a business calculator from when I used to sell mutual funds. You’ve gave me some more to think about. I’ve got an appointment with a banker on monday and I’ll also be talking to a lawyer and a title company to see what it would cost to get this deal done just between me and her. If it’s in the $1000 to $2000 dollar range I’m sure she’ll be willing to work that out with monthly payments. I’ll talk to her Monday evening and see if she’s will to go 7yrs or does she want to have her money in full in two years. $40,000 for 7yrs at 7% is $604/mo. On the other hand $40,000 minus $600/mo for two years with a balloon (an incentive for her to go no interest for the 2yrs) leaves only $25,600. If she wants a lump sum sooner versus later I could show her that selling the $45,000 house for $40,000 at $600/mo no interest would put me at 65% LTV in 18 months “guaranteeing” me the ability to get a bank loan. I’ll be talking to bankers this week to try and verify whether 65% LTV will guarantee me the ability to get a loan.

I’m gonna take you’re advice and pursue working the deal out with me getting ownership rights and her carrying some sort of mortgage even if numerically speaking a lease option would work out the same. Having her hold a mortgage has its advantages as you have pointed out.

Thanks again,

Re: What are you doing? - Posted by Charles

Posted by Charles on March 10, 2001 at 11:34:54:

thanks for the reply.

I’m primarily looking for a place to live but I also see an opportunity in this neighborhood since it’s a buyer’s market. I’d like to set myself up to be able in few years to get money (maybe out of this house) to offer other motivated sellers a quick discounted out and then turn around and lease option those investment properties at full market value to young couples in situations like my wife and I are in (no down payment/less than perfect credit because of previous youthful indiscretion). Does that make sense or would I be taking on too much risk trying to “help” people in the same way I am being “helped”?

Re: WOW ! ! ! - Posted by charles

Posted by charles on March 09, 2001 at 23:03:07:

I don’t know how to close a deal on paper. I don’t know what the legalities are. Should I get a lawyer? The big concepts I understand but how do I do the paperwork? Can you help me RobH?

Re: A place to live…HELP! - Posted by JohnBoy

Posted by JohnBoy on March 11, 2001 at 11:59:18:

Total cost between the attorney and title company should be under $700 total. You’re dealing with a seller carrying the financing. That just leaves the attorney fees for doing up the paperwork and the title company to do the title search and issue title insurance. Get the seller to pay the title insurance.

Let us know how it turns out or if you run into any snags along the way just post it here on the newsgroup. Someone will be able to answer it and help you out.

Good Luck!

Re: WOW ! ! ! - Posted by RobH (MI)

Posted by RobH (MI) on March 09, 2001 at 23:55:24:

Ok, Lets look at what you have.

  1. “He died 6 months ago and she has moved out into the country with her daughter (I
    think).” Is irrelevant.

  2. The asking price is based on an appraisal (that’s what I was told) Told by whom
    (Can they prove it?)

  3. (I checked) because it is unprepped for sale (garage full of junk, walls not repainted
    etc.) and has a few dings (needs some tiles in the bathroom, has a hole in one side of
    a hollow wood bedroom door, stuff like that…).This goes for all houses to some

  4. You are letting your emotions play too large a part in your decision.

  5. You are lacking sufficient knowledge to proceed, by your own admission.

Best thing you could do on the spare of the moment is to look in the Yellow Pages,
make some calls and locate a “Buyers Broker” to peruse your interest. (One you can

Do not trust what the seller tells you without documented evidence.

Get your emotions out of a logical analysis.

Take care with long term decisions.

Good luck.

RobH (MI)