Posted by Shenesa on October 26, 2000 at 07:52:07:
Thanks Mark,
I live in Upstate NY. I have already started going through the phone book and seeing what different mortgage brokers offer.
Thanks,
Shenesa,NY
Owner Finance with little down - Posted by Shenesa
Posted by Shenesa on October 25, 2000 at 08:39:52:
Last night I spoke with another investor who is interested in the property that I have advertised in our local paper. She is interested in cash flow. So she asked if I was willing to do owner financing? I explained to her that I will be willing to do Owner finance but I will have to raise the asking price due to the note buyers discount. I asked her how much is she able to put down and she said “not much.”
I know that this can be done. But how can I work this deal out with the seller paying little for a down payment?
Your suggestions appreciated.
Shenesa,NY
Re: Owner Finance with little down - Posted by Mark-NC
Posted by Mark-NC on October 25, 2000 at 11:58:00:
Shenesa,
Listen to what everyone is saying they are right. If you can get this done with a note deal you would be better off going to a good mortgage broker.
Consider this, Most note buyers sell thier Notes to a company and the Note ends up in a sub prime loan product or something similar to it. The thing is the Rate is bumbed up in the note product to increase the yeild. So why not just go to a sub prime lender and get a better rate.
A year ago I wouldn’t have said this. But since the Note business is tightening up I don’t see why anyone would even bother with notes on simultaneous closes. They are just as hard if not harder to get closed as a mortgage product.
I also believe if you have a good Mortgage Broker, you will find that there is a wider varity of products available than you can get on the Note side.
You can still run your ads with possible owner financing to draw attention to the home but once you qualify your buyer tell them that you can get them a mortgage. Many buyers Don’t even think they will qualify. But let me tell you they have more of a chance qualifing for a mortgage product than whats available with notes right now.
Speaking as an ex Note broker I have much personal experiance on this one.
Good luck!!
Mark
Re: Owner Finance with little down - Posted by JohnBoy
Posted by JohnBoy on October 25, 2000 at 10:41:52:
First of all, how much is, “not much”? My guess is that your buyer is going to need at least 5% down and possibily 10% since this is going to be a non-owner occupied deal for your buyer.
I help but notice a lot of people keep posting here saying they want to just create a note to sell at closing as if though this is an easier way to close a deal. The reality is that this is not an easier way to get a deal closed. If you can find a note buyer willing to buy the note at closing, then trust me, you can just as easy, if not easier, find a lender that would just write a new loan for the borrower. A note buyer is going to require your buyer to have decent credit just the same as a lender will. The only difference is that by using a lender to finance your buyer vs. selling the note at closing is that you won’t have to give up any of your profit by discounting a note. So WHY would you want to jump through more hoops creating a note, finding a buyer for it, then praying the buyer shows up at closing to buy the note?
In my “opinion”, the only time I would use a note buyer is if I had a property that I had seller financed and for some reason I NEEDED to get my cash out of the deal NOW. First I would try to get my buyer to refinance now instead of waiting until their contract with me requires them to within the next 1 - 2 years. If I couldn’t get my buyer to refinance the deal early, THEN, I would try to sell my note to a note buyer so I can get my cash out and gladly discount it if that’s what I HAD to do to get my cash out. Otherwise I would just get my buyer financed through a lender that allows seller carry backs. There are lots of them out there that do this. So why discount your profit when you don’t have to? The only other way would be if I couldn’t find a lender to finance my buyer. But if I can’t find a lender willing to finance my buyer then you can bet it will be very difficult to find a note buyer willing to buy the note at closing also. The only exception may be that you agree to take a STEEP discount on the note.
If you do use a note buyer, then you want to be sure you’re using one that is buying the note themselves and not just someone trying to broker your note by finding the buyer for it. This would only mean you will need to take a larger discount to cover the brokers fee for shopping your note. So you need to know who your dealing with on this.
The LTV on the first is going to be based on actual appraised value which would be based on the current condition of the property. Your second can be for more than the property’s appraised value. The thing that you need to know is whether or not the 80% first based on actual appraised value will be enough to pay off any underlying liens and mortgages and give you enough cash left to put something in your pocket instead of just getting stuck with a second out of the deal. You need to know this whether you would be creating a note to sell or if you were getting your buyer financed with a lender.
I would hook up with a GOOD mortgage broker that has different loan programs available that can get your buyers financed. This isn’t any more difficult than creating a note to sell at closing and in my opinion is probably easier to accomplish. Plus you will have a lot less hoops to jump through by having to deal with a note buyer vs. a mortgage broker.
I would find out exactly how much “not much” is and see what the buyers credit is like. Being a non-owner occ. deal is going to require at minimum 5% down. My “guess” here, is, that “not much” is probably somewhere around $1k - $2500 which isn’t going to be “enough”. So verify how much the buyer actually has to put down.
Re: Owner Finance with little down - Posted by phil fernandez
Posted by phil fernandez on October 25, 2000 at 08:58:13:
I think the question your asking is how to generate enough downpayment so the LTV ratio will be to the liking of your note buyers.
The fact that your buyer doesn’t have a large downpayment could affect the amount of discount involved. However if you took back a small second to where the second and the buyer’s downpayment equaled about 20%, the 80% LTV will look more attractive to your note buyers.
How’s the buyers credit, does your buyer have a problem with raising the sale price to offset the discount, will the property appraise at the higher price. Just some questions you’ll want to get answered before you actually structure the note.
Re: Owner Finance with little down - Posted by Shenesa
Posted by Shenesa on October 25, 2000 at 13:28:58:
Where would I find a sub prime lender?
Re: Owner Finance with little down - Posted by Shenesa
Posted by Shenesa on October 25, 2000 at 09:25:36:
Thanks Phil for your response.
I did mention raising the asking price to the investor, so she is aware of it. As far as her credit is concerned I will call her tonight to ask and I will consider carrying a second to equal the 20% dwn payment so that its more attractive to the note buyer.
Question, does the notebuyer look at the ARV to determine the discount and if its something he/she maybe interested? Or do they look at the value of the property in its present state?
Thanks again.
Shenesa,NY
Re: Owner Finance with little down - Posted by Mark-NC
Posted by Mark-NC on October 25, 2000 at 14:30:19:
Shenesa,
What part of New York are you in? I may know someone that can help.
If not just get in your phone book and start calling Mortgage Brokers. Ask them if they are familliar with the types of transactions you are doing. And what type of products they have avaialable to work with for flips. You may go through a few before you find one that can help you.
Mark
Re: Owner Finance with little down - Posted by phil fernandez
Posted by phil fernandez on October 25, 2000 at 10:17:48:
Shenesa,
From my experience dealing with notebuyers, it will depend on the particular note buyer as to if they use just the as is value or if they also look at the ARV to arrive at their discount. I would call each note buyer and ask them that question.
Also most notebuyers will want the buyer to have some downpayment money at risk into the deal. You had mentioned above that your buyer has only a small downpayment. Hopefully your buyer has 5 - 10% and then you can make up the rest with the small second discussed above.
Good luck and keep us posted on your ongoing deal.