Posted by JohnBoy on January 19, 1999 at 13:28:53:
You need to find the right mortgage broker to work with. You want to find a mortgage broker that works with many different lenders that offer many different programs. Find a broker that works with B-C Borrowers. They should have lenders that can get anywhere from 65% LTV up to 100% LTV depending on the borrower.
If you have a borrowerer that can only qualify for 85% LTV then have your broker set you up with a lender that allows seller carry backs. Providing you have enough equity in the deal to worth with and your goal is to get the property sold.
Lets say the property appraises for $90k in a year from now. Your buyer can only qualify for a loan at 85% LTV. 85% of $90k is $76,500. After your buyer has put down $3k and built up $3600 in rent credits after one year his balance owed to you would be $83,400. $83,400 - $76,500 = $6900. You agree to carry back a second for the $6900. Your buyer has $6600 of his own money in the deal already which is more than 5%. A lot of lenders will allow a seller carry back if the buyer has 5% of their own money to put down. So the buyer puts 5% down, the lender loans 85% on a first, and the seller carries back the other 10% as a second.
Since this is a lease-option a lot of lenders will treat this as a refinance Vs. a purchase. If it’s a refinance the loan will be based on the appraised value and not what the buyer has to put down. As long as the equity is in the property they can get the loan if they qualify and have proof of the payments being made on time over the last 12 months.
If the LTV is less than what the buyer needs to pay off the contract then one option would be to carry back the difference as a second providing you have enough equity in the deal to pay off all the underlying loans.
Other thing you should do is when you find the right broker to work with is sit down with him, go over your tenants credit and find out what your tenant will have to do over the next year to qualify for a loan. Will they need to pay off high debts? Will they need time to re-establish credit showing on time payments? Will they need to pay off collections or Judgements? Will they need to earn more income to qualify? Find out everything that will be required for your tenant to qualify for a loan a year down the road. Then you need to decide if this looks like something then can accomplish. Do they think they can accomplish this?
In the example above, is this the deal your structuring between you and your buyer? Or is this the deal between you and the seller?
Give more details on both ends of the deal and maybe we can help you with a way to structure it better. What are you paying in rent? What is your option price to buy at? Are you getting any rent credits on your end between you and the seller? Or is the above deal your deal between you and the seller?