Help w/creative financing - Posted by Beth

Posted by Earnest on March 22, 2001 at 22:29:49:

Not only that but why would a lender want to refinancew with today’s low interest rates. Banks aren’t looking to refinance good loans right now. If the borrower haws good credit, etc. a lender might rather just keep thngs the way they are. Of course, with today’s rates a borrower just might want to refinance everything.

Help w/creative financing - Posted by Beth

Posted by Beth on March 19, 2001 at 19:15:19:

We have an opportunity to purchase a home in Washington state for $40,000. The primary loan is $28,000 (with 8 years left on loan), 2nd is $8,000 and back taxes of $4,000. We have $5,000 for a down but the house has been under construction and not FHA or VA loanable. The loan has a “due on sale” clause. I’ve read about land contracts and the owner is willing to carry the contract but I am concerned with the loan being called due and whether we can even do a land contract with back taxes and a 2nd on the property? Are there any other options? How do we secure this deal and protect our interest in the property? The comparible sales in the area are approximately $110,000. I don’t want to miss out on this!

Thank you!

Re: Help w/creative financing - Posted by Bob (Md)

Posted by Bob (Md) on March 20, 2001 at 16:29:50:

You didn’t say if you were going to live in it. If so, check out the HUD 203k program. Money to purchase, and to fix it up to HUD/FHA standards. You’re supposed to live in the property for at least 2 years, but I’ve never heard of anyone getting in trouble for selling sooner. You just can’t do another 203k loan for 2 years. The 2-year restriction nicely matches the 1997 rule that you have to live in the property for 2 years in order to roll any equity into another residence tax-free.

You should be able to find a 203k through most major lenders, with terms something like 8-8.5% on 30 years, with up to 95% of After-Repaired Value. You’ll have to jump through a bunch of hoops because the government is leery of being taken to the cleaners (which used to happen a LOT) when they guarantee the loan. Beats the heck out of hard money if you’re going to live there.

Otherwise, approach a small-town local bank and ask about the possibility of a construction loan (some call it a “portfolio” loan). Typically, it will have reasonable rates (maybe even 7-7.5%), interest only with a one-year (or sooner) baloon. Gives you a year to control the property, fix it up, and get it refinanced. They’ll probably only go 65-75% of after-repaired value, but they will often do a bridge mortgage taking an interest in another property in addition to the primary one in order to secure their position. If you can find this type of loan and buy the property right, the whole deal can work with zero down!

Hope this helps.

Re: Help w/creative financing - Posted by JohnWe (NoCA)

Posted by JohnWe (NoCA) on March 19, 2001 at 19:50:39:

  1. The 2nd and property taxes won’t interfere with your land contract.

  2. The “Due On Sale” is something to consider, but I wouldn’t consider it that much. First of all, the bank would need a reason to excercise the “Due on Sale”, and from what you’ve said, I don’t see any reason for the bank to do that. Worst case, they call it, and you can deal with it then in any number of ways, including getting new financing altogether, or selling the property retail (after the taxes are paid).

  3. If the owner’s motivated, just have him deed the house over to you, and you pay the taxes, and take over the payments on the 1st and 2nd. It’s really that simple.

  4. Don’t do a land contract if you don’t have to. If you get a deed, you’ll be in a stronger position. If the seller won’t go for that, and you do a land contract, make sure you record it.

Hope this helps!