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

import · August 13, 2005, 3:42pm

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

import · August 13, 2005, 3:42pm

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:

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?