First Deal - Suggestions? - Posted by Russell

Posted by Russell on February 15, 2000 at 22:56:13:

…my learning curve just took another sharp turn upwards. I had no idea of the negative effect more than two mortgages can have on your credit record – yeah, I know – that’s not the only think I have no idea about. I appreciate you taking the time to offer a detailed explanation. It’s exactly what I was looking for.

I keep thinking of Robert Kiyosaki’s words, from his book, “Rich Dad, Poor Dad” – TAKE ACTION! I am very motivated to take action but may be jumping the gun at this point. I plan to keep studying and proceed with caution.

Thanks again,

First Deal - Suggestions? - Posted by Russell

Posted by Russell on February 14, 2000 at 24:31:02:

I’m running some numbers to see if this might make sense. I am inexperienced, but I have to get my feet wet some time - just don’t know if now is the time. Here’s what I know so far:

Seller getting anxious - going to be transferred out of state. Contract just fell through with other buyer.

Excellent 3 1/2 year old, brick, 3-2-2, landscaped

Inspection: no needed repairs/no termites/good foundation (information courtesy of previous contract)

Nice developing neighborhood of new homes near large corporations - walking distance to good schools.

Advertised $95,000

Per phone call, quoted $93,000 - “… but we’ll negotiate even more.”

FHA qualifying assumable at 7.5% ($879 PITI), I can qualify.

Loan balance $84,000

Rents in area $1100 - $1200.

Seller has contract on other house and needs $4000 cash, otherwise seems open to taking a note (said he doesn’t really understand how it works, but no objection at this point).

I can get the $4000, but of course would like to hold on to as much as I can. I’m going to research today to see what the transaction costs will be (lender’s assumption fees, title company, closing, etc.). I only have my previous two plain vanilla home purchases as any indicator of closing costs, which weren’t cheap.

Any advice/suggestions from you vets would be appreciated.


Re: First Deal - Suggestions? - Posted by JohnWe (NoCA)

Posted by JohnWe (NoCA) on February 14, 2000 at 20:35:30:


Good Deal. I would then sell the property on an ILC Wrap.

Sell it for $105K with 10% down and 11% interest for 30 yrs, owner financing. You’ll probably end up with about $5k after you pay the seller the $4K. You could give the seller the additional $5K at this point, but I wouldn’t.

Tell the seller you’ll pay the $5K note in 50 payments of $100 a month.

Cash flow’s thin for a couple of years, but it’s not a bad first deal, and you walk away with $5K.

Good Luck.

Re: First Deal - Suggestions? - Posted by GIO

Posted by GIO on February 14, 2000 at 18:02:58:

i’m kinda new at this so take it lightly - but how about doing a lease option - get the 5% down from another buyer and pass the $4k to the seller - and if the ctc can be assigned then assign to the new buyer and keep the difference - negotiate for yourself time to find the new buyer . good luck - i hope this is a decent idea

Re: First Deal - Suggestions? - Posted by B.L.Renfrow

Posted by B.L.Renfrow on February 14, 2000 at 12:39:53:

I am assuming from your post your intention is to live in this property as opposed to renting/selling it. If so, it doesn’t sound unreasonable…not anything spectacular, but you’re essentially paying market value. One thing you don’t mention is comps (what similar properties in the same neighborhood have recently sold for). That’s a better indication of the true market value than the seller’s asking price! If the comps support a price of $88-90k, then you should be OK. If you can qualify to assume the FHA loan, and you intend to live there, then you’re in for about a 4.5% “downpayment” (your cash to the seller), which is OK for owner-occupied. However, if your goal was to have an investment property, (non-owner occupied), then I wouldn’t tie up my credit by doing a formal assumption.

I wouldn’t see any advantage to a seller-held note, unless he sells it at closing to pay off the first. But that would certainly be at far more than 7.5%, so it wouldn’t make sense.

Finally, you can try to negotiate with the seller so that if you get him $4k at closing, he’ll pay as many of the closing costs as possible. Depends on what he’s needing the $4k for. A local attorney or title company should be able to tell you exactly what the closing costs would entail.

Brian (NY)

What is a “ctc”? I’ve never seen that before. (nt) - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on February 14, 2000 at 22:20:21:


Re: First Deal - Suggestions? - Posted by Russell

Posted by Russell on February 14, 2000 at 23:36:57:

I am looking at this house as a rental property.

I’m a bit confused with your comment, “I wouldn’t tie up my credit by doing a formal assumption.” I thought that it was preferable to assume loans for investments versus getting new mortgages. I realize that owner financing and NQA are better, but what is the negative angle on formal assumptions?

Re: What is a “ctc”? I’ve never seen that before. (nt) - Posted by GIO

Posted by GIO on February 16, 2000 at 13:29:32:


A funky abbreviation for “contract”?? (nt) - Posted by Kay

Posted by Kay on February 15, 2000 at 02:00:12:


Re: First Deal - Suggestions? - Posted by B.L.Renfrow

Posted by B.L.Renfrow on February 15, 2000 at 17:18:23:

Allow me to clarify: by formally assuming the loan, you tie up a significant portion of your available credit, depending, of course, on such things as your other assets and income. Thus, if you do end up with this mortgage loan in your own name, you’d likely have trouble qualifying for ANOTHER loan, should that become necessary. Commercial lenders are funny, and they don’t always proceed according to common sense. They look carefully at such things as your debt to income ratio, as well as how many loans you have outstanding. Even though you may have adequate income to support two or three or ten simultaneous loans, they get skittish if they see more than one, or sometimes two, mortgage loans on your credit report.

You are correct that it is often preferable to assume loans, but this typically takes the form of an “informal” assumption such as a subject-to deal, in which the loan remains in the original buyer’s name while you take title and make payments on the loan. That way, your personal credit isn’t tied up, yet you have all the benefits of ownership. Of course, there are risks, albeit small, but you need to know what you’re doing.

Regarding your post above: As you realize, it depends on whether the seller NEEDS $4k or WANTS $4k. If it’s a want, then you obviously have more room to negotiate. But, your idea of selling an unseasoned second likely won’t fly. You’d be lucky to get 30 cents on the dollar for that, if you could even find a buyer. Unseasoned seconds are notoriously difficult to sell.

If you don’t have the $4k (or $3k) cash available to give the seller, you could…

  1. Get a credit card advance.
  2. Offer the seller a note secured by a second mortgage.
  3. Try someplace like Beneficial Finance, or whatever they’re called these days.
  4. Borrow it from a friend or relative and offer them 18-20% interest.
  5. Borrow against life insurance, IRA or 401K if you have them.

Hope this is a little more clear.

Brian (NY)

That’s What I Thought, Too. - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on February 15, 2000 at 11:47:33:

I guess we are just inventing “funky” new abbreviations at our whim.

Jim Kennedy,
Houston, TX