Re: CFD or wrap mortgage… - Posted by JohnBoy
Posted by JohnBoy on February 17, 2002 at 10:17:52:
Don’t record the contract! Then your bank would never know unless you told them about it.
You should also feel your banker out about selling your properties on contract vs. just renting them. You may find your banker won’t care one way or the other as long as the payments to them are being made on time. Many local banks in my area cater to investors doing this and don’t care. But if your contract between you and your buyer is never recorded then the only way your bank could find out about it is if you told them about it.
Why do you need at least a 630 FICO score in order to sell to them? If they had that they could get financing through a bank and buy any property they wanted up to the dollar amount they qualified for according to income and debt ratios.
I have one lender that will give a 100% first mortgage with FICO scores starting as low as 580. There are a number of lenders that would give 100% financing with a 630 FICO. With 10% down they could get financed with almost any bank with a 630 FICO!
Since they already said they were working on rebuilding their credit than that tells you right there they have had credit problems and expecting a 630 FICO is a bit much!
I don’t worry about the FICO score. That can change a lot within a year or two. What I look at is what their current history is. Have they been paying on time recently? How much do they owe in outstanding charge offs and/or judgements? If any, is the amount to get those paid off in the next year or two reasonable amounts that they could afford to clear up within that time or not? If so, then once they clear that up their FICO score would shoot up. You need to look at the whole picture as to why their score is what it is today vs. what they would have to do to get up enough to qualify for financing later.
Also, since this is a deal that you own with your own financing in place, then unless you NEED to get it sold and cashed out in a year or two, then what’s the big deal what their FICO score is? As long as you get enough down and they make their payments on time every month, I would just renew with them by writing up a new contract every two years and continue to carry them while they pay me until I die!!! There is no time limits to get them to cash you out like there would be when you have a seller involved where you where buying on a L/O or subject to from them where you need to get their underlying financing paid off in the near future.
You purchased this as a rental which is usually a long term investment. So what difference does it make if you ended up carrying this over the next 30 years by selling on one or two year contracts??? You have the best of both worlds! You get TOP dollar should they get financing to cash you out. Meanwhile you get a big chunk of cash up front to cover any risks involved should they ever default within a year or two, you get top dollar in monthly payments vs. rent payments, you get no landlord/tenant headsches since they are buying vs. renting. You get to rewrite a new contract or sell to someone else when the contract comes due every year or two and adjust the price each time, making more money off the property until someone eventually cashes you out!
So who cares what their FICO score is right now? They are coming in with a sizable down payment. That buys a lot of risk to offset their credit score with! If you were just renting by only being able to get first months rent with a month’s rent for a security deposit that that would be another story. But coming in with 10% down buys a lot of credit forgiveness with me! That’s why people buy from us in the first place, because most of them can’t get financing through a bank today. If I had buyers walking in with 630 FICO Scores I could be cashing out on my deals now instead of waiting to get that money in a year or two from now!
If they have been working on repairing their credit for 3 years then they should be showing a decent payment history since they had their problems. That’s all I would care about. The scoring system is already flawed enough. If you’re going to be strict like a bank when it comes to going by credit scores only then your buyers aren’t really going to need you to sell to them. They could walk into just about any bank and get a loan based on those standards! A 630 FICO is a slam dunk for getting a loan through a bank!
Other than that it looks like you have the right idea on structuring this to make maximum returns on your investment!