Problem with Seller 2ND, and FNMA Guidelines ! - Posted by Bridger
Posted by Bridger on August 13, 2005 at 15:42:35:
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:
- The 2ND Mortgage will be a 10 year Balloon mortgage
- There will be fixed monthly payments of principal
in the amount of $XXXX per month.
- ZERO interest
- 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:
- Monthly payment of both Principal and Interest
- 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?