Posted by Kathie E. on January 24, 2000 at 08:56:52:
Hi, John!
If you pitted two brokers against one another for your business, you probably only had 2 credit inquiries to your report which were made by them. You are allowed 5 inquiries per year and anything over that deducts 10 points per inquiry from your Beacon score. This was told to us by the broker that is now handling our deals. He said that the lenders he deals with can disregard the low score when there’s evidence that it is low due to inquiries ONLY as is our situation. Now, when the broker is shopping for OUR loan with the 160+ lenders he deals with, he will provide a copy of our report to them (a current copy is good for 60 days) and will not allow them to pull their own copy which will prevent any further lowering of my husband’s score. Of course, the broker’s inquiry will bring us down another 10 points, but the broker doesn’t seem too concerned about that.
Will keep you posted…
Kathie E.
Posted by Kathie E. on January 23, 2000 at 22:19:23:
Finally, folks! We’ve DONE it!!! After many hours reading the posts on this website and finding a mentor that offered to let us pick his brain for FREE and the promise of our testimonials for his new business, we have “arrived”!!!
Our first deal is closing in a week…we purchased two rented singles for 70% of FMV, no money down, borrowing 90% of appraised value, getting cash back at closing and the seller is paying all closing costs. We are being PAID to purchase these two properties and they are already rented with long-term tenants that we’ve met and think are wonderful! The rent pays the mortgage and gives us $200 in positive cash flow each month also! Through creative financing, a seasoned broker and a seller who is motivated to liquidate his rentals to start his own construction business, we were able to pull this off and are anxious to purchase more! It helps that we could leave our OWN home’s equity alone and know that it will be paid for in 5 years without borrowing against it and raising our current payment as well. It’s really exciting and we’ve appreciated all of the advice and expertise we’ve gained from this site.
It’s been invaluable to us!
Thank you all and good investing to you!
Kathie E.
Posted by Kathie E. on January 24, 2000 at 12:19:31:
By the way, I just noticed that my original post said “70% of FMV” as the purchase price. That was an excited fingers flying TYPO and didn’t meant to mislead anyone. We are actually purchasing at 80% FMV. $56,000 on $70,000 appraisal.
Kathie E.
Posted by B.L.Renfrow on January 24, 2000 at 11:15:00:
Kathie,
I had watched you post a few months back, then when you disappeared, I assumed - incorrectly, as it turns out - that you were like many, who come here and ask questions, but never actually go do a deal.
Great work! It’ll make your next one easier, now that you’ve been through the process and know that you CAN do it.
How did you get around the usual lender position of loaning 90% of appraisal OR purchase price, whichever is less? It seems unusual to say the least, to find a commercial lender willing to do the deal with nothing out of pocket on your part, especially with a NOO, unless you are using hard money or a private lender?
Posted by TRandle on January 24, 2000 at 10:02:47:
Kathie,
I’m curious. Are you having to purchase the properties with a certain LTV based on purchase price and then refi based on the 90% LTV? I did that recently, but if you’ve found a way to bypass the first loan, I’m definitely interested to hear how. It was difficult enough to find a refinance investor cash-out loan for 90% of appraisal. Thanks, and again, congratulations on what sounds to be a great deal!
Posted by Kathie E. on January 24, 2000 at 12:25:16:
Brian,
Also, can you explain “hard money” to me and any others who aren’t quite certain how it works? Is that what OUR seller is doing by carrying a note for the downpayment that he never intends on collecting and will be “forgiving” in 6 months as a “gift of equity”? Alos, our broker says that he’ll teach us the million mistakes people make when flipping and the only CORRECT way to do it down the road after our feet are good and wet. As usual, we are anxious to learn ALL the tricks of the trade!
Thanks again,
Kathie E.
Posted by Kathie E. on January 24, 2000 at 12:10:28:
Thanks, Brian!
Here’s the entire deal:
2 singles - currently rented - appraised @$70,000 each.
The seller is starting his own construction business, liquidating his properties and also is partner with the broker on some other properties. The seller is asking $56,000 for each property (80% of FMV). The seller is paying $2,000 each property for closing costs. We are applying for $63,000 on each property (90% of FMV) and the seller is carrying a note on the $7,000 on each one as our down payment (difference between the appraised value of $70,000 and the borrowed amount of $63,000) At closing, we will receive $7,000 for each property (the difference between the $56,000 and the borrowed $63,000 after paying the seller.) In 6 months, we refinance the homes and he forgives us the note as a “gift of equity” and he writes the $14,000 off on his taxes next year.
This is how the seller purchased these homes and how he has always purchased his REI’s through this broker.
Hope that clears the deal up for you and I also hope that what we are doing is LEGIT and won’t come back to “bite us” somewhere down the road!
Thanks for the congrats!
Kathie E.
Posted by JeneanNC on January 25, 2000 at 20:42:59:
TRandle, you have a lender who will make a 90%LTV on a refi and cash out to investors? Do you mind telling me how I can get in contact with them? Thanks!
Posted by Kathie E. on January 23, 2000 at 22:49:50:
Thanks, Lynn!
I had posted to NewsGroupII earlier by mistake, (fingers flying and mouse clicking randomly with excitement!), so here’s a post-script to my original as well…
The key was finding the BROKER. He “peddles” properties for friends and business associates running newspaper ads for “no money down” deals and then MAKES them happen! With his contacts and 16 years experience in all areas of REI and creative financing, I think that we were lucky to make his acquaintance! The mentor that contacted us has also been a real GEM to know and his wealth of advice has prevented us from making deals that were NOT in our best interest as newbies. We’ve been given his “thumbs-up” on this initial deal and, again, are incredibly excited!
As a footnote for anyone who is thinking that they can’t make this work for themselves, I am a stay-at-home mom, therefore my husband’s credit and income are all that we have in our ventures. While shopping for different types of equity loans and refi’s on our current home, we failed to prevent all of the brokers and lending institutions from pulling a credit report on my husband each and every time that we applied while shopping around. This resulted in my husband’s BEACON score dropping significantly (to 580) in the last 6 months. When we realized how severely the inquiries had affected his score (10 points for each inquiry that exceeds 5 in a year), we were convinced that we’d have to wait until it rose or a miracle happened for us. The broker we are using now has made it HAPPEN, so don’t get discouraged by anything!!!
Posted by B.L.Renfrow on January 24, 2000 at 14:09:28:
Kathie,
I’m afraid Tim has laid it out pretty well below.
The problem comes in, as Tim indicated, IF you signed a document as part of the loan application package indicating there would be no other liens on the property, and no other arrangements of which the lender is not aware. The question to always ask is this: If the lender knows about the (forgiven) second, will they be willing to make the loan anyway? If the answer is yes, then you’re OK. Trouble is, the answer is rarely yes. ESPECIALLY where it concerns the downpayment.
Of course, this type of deal is done everyday. But it’s still illegal. If it comes to light, unless I’m missing something here, you could have a real problem.
Regarding the term “hard money”: That refers to equity-based funding. In other words, a loan that’s based strictly on your equity in the property, not on your credit, income or other factors. So-called hard money loans are usually from a private source, rarely will exceed 60-70% of FMV, and typically carry a high interest rate.
What your broker is proposing is NOT hard money…though it might lead to “hard time”. It’s a trick of the trade allright…one you want to stay away from.
Posted by JeneanNC on January 25, 2000 at 20:28:29:
Who is the lender that would allow no out of pocket funds from you the investor buyer? The lender has allowed the seller to carry a second note as your down payment as an investor (not an owner occupied loan)? I need that lender. I have a seller who would carry the note (not forgiven), but the lenders want allow it from an investor as my down payment.
Really, would you be willing to share that lender?
Posted by Tim (Atlanta) on January 24, 2000 at 13:06:03:
I certainly don’t want to rain on your parade, but if what you posted is true, you may have done something illegal. Its called loan fraud. Did your mortgage broker inform the mortgage company about this arrangement? I would wager he did not. You and the seller have an agreement that he will forgive his 2nd mortgage in 6 months. During closing you probably signed a piece of paper stating that you and the seller had no deals outside closing. There is the loan fraud. Some of my investor acquantances did this very thing, selling property for appraised value and writing a “forgiven” owner second. The owner second is not the problem. It is the fact that the seller agrees to forgive it without informing the lender. The set of investors I mentioned now face a $50,000 fine for each instance. Now that hurts!!!
Posted by John P S. FL on January 23, 2000 at 23:50:11:
Kathie,
I was under the impression when shopping for a home loan/mortgage that your Beacon scores are unaffected. I am pretty sure of this because I pitted two mortgage brokers against one another when I purchased my home and this did not affect my scoring. Correct me if I am wrong.
Posted by Kathie E. on January 24, 2000 at 15:08:55:
hmmmmm…well, I just hung up with my husband and he said that he did NOT sign anything stating that he had no other deals between himself and the seller. Going to run all of this “new information” by the mentor and see what he thinks about it. My husband has signed VERY little and has copies of all loans appl’s and other forms, so we will take everything to our attorney for legal verification.
Thanks for your advice, guys, and will keep you posted!
Kathie E.
As usual, we are anxious to learn ALL the tricks of the trade!