Problem with Seller 2ND, and FNMA Guidelines ! - Posted by Bridger

Posted by Shambhu Nath on August 14, 2005 at 14:44:50:

The problem is not only note but FNMA wants second from a institution and not from seller. As you are zero down, FNMA also wants fixed loan with P & I payment on second.
I think only subprime lender will allow seller second as your LTV is very low as long as your credit and income qualifies you for 100 % CLTV

Problem with Seller 2ND, and FNMA Guidelines ! - Posted by Bridger

Posted by Bridger on August 13, 2005 at 15:42:35:

Hello Everyone:

I am currently working on a deal, where the seller and I have agreed that I should get a 1ST mortgage for 40 % of the sale price; and Seller will hold the remaining 60% of the sale price as a 2ND mortgage.

As for the terms of the 2ND mortgage, we have agreed on the following:

  1. The 2ND Mortgage will be a 10 year Balloon mortgage
  2. There will be fixed monthly payments of principal
    in the amount of $XXXX per month.
  3. ZERO interest
  4. Balance of Principle (minus 10 year worth of
    payments) due at maturity in 10 years time.

This works for me as far as what I want to achieve in this deal, but I have run into a problem. It appears that no mortgage company will loan me the IST Mortgage for 40% if my 2ND Mortgage with the seller does not meet FNMA guidelines. From what I understand FNMA guidelines require that the Seller/ Subordinate/ 2ND Mortgage contain provisions for:

  1. Monthly payment of both Principal and Interest
  2. Interest payments at prevailing interest rate

Under my agreement with my Seller , I cannot meet these guidelines. I cannot pay both principal and interest. I am only going to pay principal. I am not going to pay interest at prevailing interest rates because I will be paying no interest at all. ZERO, ZILCH, NADA. Sadly this means that my Seller/Subordinate/2ND Mortgage will be unacceptable to the mortgage company and they will refuse to lend me the 40% for the 1ST Mortgage because of this. This could be a deal killer.

Any way around this?