Help with creative OO financing, loosing my nerve. - Posted by Tim

Posted by JohnBoy on March 01, 2002 at 17:30:25:

I mean I don’t get any loans that are in my name. I take over the seller’s existing loan subject to.

If I’m going to use MY credit and get a mortgage in MY name then it’s only going to be on a property that I’m getting a DEAL on!

Help with creative OO financing, loosing my nerve. - Posted by Tim

Posted by Tim on March 01, 2002 at 12:54:33:

I am in the middle of purchasing my first investment property and trying to use creative financing. If I get an OO loan I can get a 5.5% rate and an estimated +$250/month cash flow from the property. When my broker saw that I was "downsizing from a $250,000 house to a $160,000 house he asked if I was planning on living in the new house. He said the underwriter would want an explanation because it is going to look like an investment property. I of course said I have every intention to move in to the house.

When I picked up the loan application there was a form that I need to sign that says I will move into the house within 30 days and live in it a year before I rent it out. The broker said that if the mortgage holder sees an address change to my present location it will tip them off and they may investigate.

The house is currently not rented, not previously a rental unit, and I would like to get someone under a lease ASAP to cover the mortgage. Does anyone have any suggestions for how to try to advertise for tenants during the loan-closing period? Should I open up a PO box for any correspondence with the Mortgage Company? Any other ideas/suggestions? I am a little nervous since this is my first investment property.

The deal doesn?t work without the OO financing. If I decide not to go this route does anyone have any suggestions for getting out of the deal?



Help with creative OO financing, loosing my nerve. - Posted by Tim

Posted by Tim on March 01, 2002 at 15:41:50:

Your right, I am going to look at the numbers again and see if I can make them work. If not I have an inspection scheduled for Monday. I don’t know if they will find anything substantially wrong, but I will try to use this as my out. If not I will have to forfeit the earnest money.

If it comes to that I guess I will have learned an expensive, but valuable lesson. My realtor casually suggested the OO financing approach and I based my numbers off of those rates.

The FMV of the house is probably about $170,000, I got it for $160,000. The financing would be 10% down and the rest at a 5/1 arm at 5.5%, $62/month PMI, taxes about $1,800/year. Expected rent is $1,350 in these parts. 2000 sqft, 4/3 with large family room.

I inquired with another lender about NOO loans. He said 30 year fixed at 7.25 10% down with a higher PMI

The more I read the more I realize that I need to get the price down much further than 5% below FMV.

Thanks for helping me sleep better at night.


Re: Help … OO financing, loosing my nerve. - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on March 01, 2002 at 14:55:35:

You asked for a OO loan for the better rate, but you don’t want to live in it? I am sure you figured it out that this is wrong and you have a chance at being caught.

You either can live in the new home, or get a change in rates since you won’t be living in it. If the deal just doesn’t work for you with the higher rates, then you need to look over your contract very carefully to see what kind of out you may have. If you have a financing contingency, and you can’t get financing, this may be a way out. If you have an inspection contingency, and you can decline to buy because of it, this may be a way out.

Shy of a legal reason to get out of the contract, you may have to let the seller keep your earnest money and you are out for any expenses incurred to get to this point.

Will the rate really kill the deal if it jumps a point or so? Is the +$250 necessary, or will +$200 be satisfactory. Find out the loan rate that you will be charged and then work your numbers again to see if it is worthwhile to continue with the new rate, or to let the deal die and lose whatever you have in the deal now.

Help with creative OO financing, loosing my nerve. - Posted by JohnBoy

Posted by JohnBoy on March 01, 2002 at 14:53:24:

If you are claiming that you are going to live in the property when you know you have no intentions of doing so then you will be committing loan fraud! Is it really worth the risk???

You need to get a non-owner occupied loan.

Is that rate a fixed rate or an ADJ rate? It sounds like an Adj rate at 5.5%.

What are the details on the property?

Purchase price?

What’s it worth?

How much are you putting down?


What will it rent for?

Help with creative OO financing, - Posted by JohnBoy

Posted by JohnBoy on March 01, 2002 at 16:27:16:

I would tell the realtor that what they casually suggested to you was an illegal act that entails committing FRAUD! Because it was of their casual misrepresentation to you to commit fraud you expect to get a full refund of your earnest deposit or you will file complaints against them and if need be you will take them to court to recoup your costs! Because after entering into this contract based solely on their casual suggestion of frauding a lender which you didn’t know was fraud until after the fact, the numbers on this deal won’t work now that you know you will have to obtain a non-owner occ loan to keep from committing fraud!

BTW, I don’t care how good of a rate you might get, paying $160k for a $170k property is NOT a deal! Remember that the first 10% of any property is just air! If I’m going to get any financing in my name then the maximum I’ll pay on any property is 80% of FMV, and that’s assuming that puppy shows like a model home! Otherwise deduct any costs to get the property to show like a model from the 80% figure and that would be the most I would be willing to pay!

If I’m going to pay anything above that then it’s going to be on MY TERMS, which is NO loans in my name, period! If I can’t get my terms then I don’t buy! NEXT!

You want cash, then it’s MY price! You want your price, then it’s MY terms!

Re: Here here!! - Posted by RC

Posted by RC on March 01, 2002 at 23:15:58:

As usual your advice is sound.
I will simply say that my opinion mirrors yours.
Thank you for setting this guy straight and advising him to get after the agent - that is something that more and more people are getting nailed on. They DO check up on it! More often than you think.

Re: Help with creative OO financing, - Posted by Tim

Posted by Tim on March 01, 2002 at 16:58:35:

Calls already into my (ex) realtor.

I appreciate your advice. I let my novice excitement get the better of me. Since I have been reading this and a couple of other forums I have learned a lot. Just wish I would have found them a few weeks ago. Gonna take that earnest money and buy a few more books and a little more time.

Pardon my ignorance, but what do you mean by no loan in your name?