Seller Assist Financing - A Newbie Question - Posted by Tony_PA
Posted by Tony_PA on October 28, 1998 at 23:09:33:
Please help me understand this area. Sorry if I sound ignorent, but it’s the only piece that I am not understanding. When I apprach a motivated seller for the purchase, lease/option, etc… of their home, WHY would the seller offer to take out another mortgage to assist ME with the financing on THEIR property. I am under the assumption that the seller wants to get out of payments, and the last thing they want to do is take on more debt and payments. (This is my hang up)…The WHY!!! Why would the seller do this for ME? Why would they take on more debt? I understand that I will be making the payments on both mortgages for the seller, but if he is looking at buying another house, doesn’t he need to free up his mortgages? How will he be able to get another mortgage with now another one on his property? How does a creative investor position the advantages for this win/win situation? Once again, sorry if this so simple…it’s just got me flustered.
Lets assume I locate seller who has property that I want to do a lease/option on. The asking price is $60,000. The seller is willing to rent the home to me on an annual lease of $550 per month and agrees to apply $50 per month towards the $60,000 purchase price. I discover the present mortgage is $38,000 at 9% and is payable at the rate of $388 per month. The seller wants $15,000 cash at close and would be willing to take back a $7,000 SECOND MORTGAGE (There it is again…what is his motivation, just to sell? Does this only work for sellers that are not trying to buy another home?) Anyway, the mortgage is not assumable, but the bank is willing to rewrite the first mortage at a blended interest rate of 10%.
So I approach the seller with my offer to lease option the property, but with different terms. I offer him a premium of $65,000. In return, however I would like my option period extended from 1 year to 3 years. Further, I offer to make a monthly payment of $600 rather than $550, but ask for a $300 monthly credit towards the purchase price.
Sorry this is so long, but I just want to understand the second mortgage that the seller has to take out so I can lease/option his property.
Also, what happens at the end of the 3 years and I decided to excercise my option to buy. Don’t I then need to apply for a mortgage? So much for the “no money down.” In essence all I have done is deffered the purchase of the property (and hopefully made some money along the way)
Please help if possible.