Seller Assist Financing - A Newbie Question - Posted by Tony_PA


#1

Posted by Bud Branstetter on October 29, 1998 at 08:33:36:

That’s right no new loans on a lease options. He still retains title and is just renting to you with the right to buy at an agreed price in the future. On an actual purchase is where a second mortgage would come in. And yes, he would so that he can sell.

The number one motivation is debt relief. They don’t have to make a monthly payment. That is why they are willing to defer getting cash with a L/O or taking payments on a purchase. The time to get the bank involved is when you can get a BIG discount for cash and you don’t have it. There is no need to refi in todays market.


#2

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.


#3

Re: Seller Assist Financing - A Newbie Question - Posted by Phillip (PA)

Posted by Phillip (PA) on October 29, 1998 at 08:42:14:

Tony,

What the seller means by ‘taking back a 2nd’ is this:

He owes bank 38K (1st mortgage).
He wants 15K cash.
Thus, 53K cash needs to appear somewhere and get paid to him and the bank.
So you go get a loan for 53K and pay him and the bank.
Since you are buying for 60K, that means that you owe him another 7K. He is willing to take this in the form of a note (i.e. “I owe you 7K, I will pay back in xxx months at xxx interest”).
There is no actual “loan” that gets applied for at a bank.

The reason a seller would do this is because:
It will help him/her sell the house.
They want the income from the 7K instead of the cash.

Phillip


#4

So close, but sooooo far away. - Posted by Joe Kaiser

Posted by Joe Kaiser on October 29, 1998 at 01:23:53:

Tony, you’re getting there . . . but you’ve still got a few kinks in the system.

The seller won’t be taking on more debt or obtaining a new loan. When he rents to you on a lease option, you’re deferring the purchase but he, likewise, is deferring getting paid. No new loans are required.

After three years you just sell it to a new buyer (maybe even the tenant), who gets a new loan which pays for the property and puts money in your pockets as well.

No money down is easy if you don’t intend to keep the property. If you want to end up owning it yourself sometime down the road, you need more firepower in your arsenal.

Joe Kaiser


#5

Re: So close, but sooooo far away. - Posted by Tony_PA

Posted by Tony_PA on October 29, 1998 at 01:30:39:

Ok, I can understand that…except for the part where you siad…“no new loans required” If no new loans are required, than what is meant by second mortgage? Does that mean I am just going to make additional payments based on terms and interest rate that we agree upon? That would be between myself and the seller and then no bank would be required?