can buyer's debt to seller be used as DP? - Posted by marla (SDCA)

Posted by marla on May 10, 2000 at 12:02:10:

Oh, I know Ed’s highly qualified and I’m sure he can do business in Oregon. However the state of Oregon limits him (as an out-of-state broker) to one deal per year in Oregon; with Ed being as qualified and busy as he is, he may have already done his one deal for this year there.

I’ll still advise Mike to contact Ed. I know from personal experience just how generous Ed is with his time and how willing he is to share his expertise. Having attended Ed’s and Terry’s lender workshop last year, I know how important the packaging is and how savvy Ed is in the arena.

Thanks again, Jim.
Best Rgds,

can buyer’s debt to seller be used as DP? - Posted by marla (SDCA)

Posted by marla (SDCA) on May 09, 2000 at 10:39:58:

A friend of mine (Sally) has rehabbed her PR and wants to sell it herself, 'though she’d cooperate with a Realtor if she could still get what she needs ($115K) out of the sale. Sally says the house will appraise for ~$156k. She owns the house, out right, but owes a friend (Mike) ~ $30K, $10-12K of which she used for supplies and appliances in remodeling the kitchen and adding a bath.

Mike has lived with Sally for much of the past year or so and Mike really feels the place is his home, but has been too intimidated by the thought of home ownership to have done anything about purchasing it, himself. (He’s known since he moved in that selling was Sally’s intent.) Now that Sally has actually put the property on the market and there are other interested buyers, Mike is finally trying to buy the property. But, by now, Sally’s in a hurry to get cashed out, pay off her debt to Mike and move on. Mike has no cash for a DP ('though he has lots of toys he COULD sell toward one), is self-employed and has good credit.

Mike has suggested the following …

Sally puts Mike on the title and they refinance with Mike on the new loan. They’d use Mike’s good credit and ok income, Sally’s good credit and the equity in the property to get 80% LTV loan. ('though he may qualify for more, Mike doesn’t want to take on more than the ~ $125K loan.) The ~$31K equity would satisfy Sally’s debt to Mike, but he wants her to pay him an additional $10K out of escrow, so that he can clear up his CC debt and have a little cash reserve. For this $10K, he’s willing to have her retain “controlling interest” in the property, because “he trusts her manage the asset more than he trusts himself.” (I think that his desire that she remain in the house with him has a LOT to do with it.)

Sally’s inclined to go along with Mike’s suggestion because the property’s in an upswing neighborhood in a good market and zoned for an additional SFR, so she sees the potential for additional profit down the road.

I see several pitfalls with the above scenario and suggest that if Sally wants to sell the house to Mike that she not actually partner with him on the deal.

We’re looking for suggestions for how Sally could sell the house to Mike, giving him credit for the $30K she owes him as the DP. (He’ll be on his own for the cc debt and cash reserve.) If she were to seller-finance the deal, would there be enough in the deal for someone to buy the note at closing and still leave Sally with $115K?

TIA for any help you can offer!


Note: Sally realizes that if she sells to someone else, she probably won’t have to go through many hoops; out of friendship, she’d like to enable Mike to buy into what would be a really good deal for him. (there are features to the property that are more important to Mike than to other potential buyers.)

Re: can buyer’s debt to seller be used as DP? - Posted by JPiper

Posted by JPiper on May 09, 2000 at 16:35:03:

If Mike has good credit he should be able to get 100% financing. Why jump through all these hoops? In fact, there’s no need to have Sally on the title. Call Ed Garcia at 909-944-0199, he can give Mike some of his financing possibilities.


obviously, that should have read … - Posted by marla

Posted by marla on May 09, 2000 at 13:28:58:

can seller’s debt to buyer be used as buyer’s dp? (chagrin!)


Re: can buyer’s debt to seller be used as DP? - Posted by marla (SDCA)

Posted by marla (SDCA) on May 09, 2000 at 18:38:36:

Thanks, Jim. I knew I’d left out a detail … 'though he has good credit and business was good, last year, he feels he won’t qualify to get 100% financing because his accountant hasn’t yet prepared his '99 tax return and the previous two years weren’t that great. (mostly due to dissolving a partnership in one of those years without getting his share of the proceeds; long story.) I’ve suggested that he could deal with this and still get the financing, but he’s so intimidated by the process, etc. that he continued to drag his feet.

Frankly, I’m with you on this. I just got caught up in Sally’s final attempt to enable Mike to buy the property … and without him having to go through the conventional loan qualification process.

An update from Sally is that Mike’s accountant said that when he’s ready to apply for the loan, have the lender contact him for '99 info. So, maybe he’ll get his act together and just buy the place; he does have an appointment with Washington Mutual, tomorrow, but in a preliminary conversation with “someone” there, Mike was told that just the fact that he was self-employed and Sally is unemployed was going to make it “harder” for them to qualify on an 80% refi (what Mike was proposing). 'course “harder” means “impossible” to some people.

In any case, Sally continues to market her place to others and I’ve forwarded your advise to her. Thanks again!

Best Rgds,

Re: can buyer’s debt to seller be used as DP? - Posted by JPiper

Posted by JPiper on May 09, 2000 at 21:01:58:

There really isn’t enough information here to effectively comment…but good credit goes a long way.

One problem here in my opinion is that Mike seems to have made his mind up on how he wants to do this…which in my view works against him. He doesn’t know what he doesn’t know.

If income were an issue as an example, there are stated income loans. There are limited doc programs out there which can be done with bank statements. Two years of bank statements can establish income rather than tax returns with some lenders.

Good credit gets Mike 100% financing. Some lenders might do all the financing with a first and second. Alternatively, perhaps an 80/20 program would work with Sally carrying a second. Income can be reconstructed in some cases. Why the approach of refinance baffles me.

Mike needs to talk with a good mortgage broker, someone who can give him some guidance. I hear Washington Mutual has some interesting programs…but if Mike is not packaged right (and he isn’t based on your post, since he is packaging himself), then there’s a chance Mike won’t fit in. Mike might just end up with what he fears the most…no loan…but it will be because of Mike’s own poor packaging rather than his true inability to obtain financing.


Re: can buyer’s debt to seller be used as DP? - Posted by marla

Posted by marla on May 10, 2000 at 10:50:57:

Again, thanks Jim. I think that hearing it from more than “just Sally’s friend” the message is getting through. They know I’ve done three no-doc loans in the past year or so, so they know it can be done …

Sally says they’ve been reading the posts and she’s going to help Mike with the packaging. I still think they need a good broker, but they’re in Oregon and I don’t know any there. I will suggest they give Ed a call, but I know (from experience) that Oregon limits an out-of-state broker to one loan per year in Oregon. If he’s already met that quota for the year, perhaps he’ll be able to refer them to a broker up their way. ;^)

If anyone else can refer a good mortgage broker in Oregon, feel free to email me, directly …

Thanks mucho, Jim.
Best Rgds,

Well put! (nt) - Posted by Eric C

Posted by Eric C on May 10, 2000 at 09:04:43:

Well put indeed.

Re: can buyer’s debt to seller be used as DP? - Posted by JPiper

Posted by JPiper on May 10, 2000 at 11:30:31:

Garcia is licensed in 42 states approximately…he’s currently doing two loans for me in Missouri. Don’t know if he’s licensed in Oregon, but it’s worth a call to find out. He’s the most qualified mortgage broker I know. His number is 909-944-0199.