What are you trying to do with this? Do you want to carry paper or get as much cash out as you can up front?
If you want to carry most of it then I would go with a contract for deed and get as much as you can down from the seller.
If you want most of your cash out then offer seller financing with 5%-10% down. Get the buyer a new 80% first and you carry back a second for the difference minus their down payment.
If you get a buyer with 5% down, you get him a new 80% first with you holding a 15% second. This way you don’t have to discount a mortgage to get your cash out. There are a lot of lenders out there that will go with these type of programs allowing selling carry backs with buyers that have credit problems. Hook up with a GOOD mortgage broker that has lenders they work with on these programs.
We have a four bedroom, 2 bath single family home in Chicago that we just rehabbed and are not getting as much interest in from Realtors as we would like. We are going to leave it on the market a few more weeks, and if we don’t get an acceptable offer we would normally look for a strong tenant and play landlord for awhile. This time we thought we would consider becoming LOANlords instead of land lords and finance the house ourselves. (Sorry, L/O just isn’t my thing. It’s an area where we need a lot more education.) Question: Which is better? 1) Take a downpayment and sell on a contract for deed. 2) Take a downpayment and sell on a single seller financed first mortgage 3) Take a downpayment, create a first and a second and sell the first at a discount. (We figured a first with a seller carry second would be easier to sell than a high LTV first, although we’ve never sold a mortgage note before.) Also, can you sell a CFD at a discount? And what kind of credit should we look for in a buyer? Isn’t job and income stability more important than dinged credit? We need all the advice we can get folks, so let me hear from you, please.
Just a note to say “Thanks” for the help from everyone here. It’s given us some serious ideas to work with. The house is on MLS for another two weeks, and then we’ve got to make a decision. Thanks again.
Re: Seller Finance Newbies–Need Your Advice - Posted by Max W. (VA)
Posted by Max W. (VA) on May 19, 1999 at 10:59:38:
My experience has been that simultaneous deals (selling the note at closing) are much easier and cheaper to do than non-conforming loans.
Non-conforming loans are typically done by mortgage brokers that charge 5 points or more (locally) on top of all the normal closing costs. I regularly do simo deals with closing costs that are around 3% of the purchase price and that includes everything (less$1,000 discount.) These are deals closed by an attorney, not a title company. Also, note buyers can do what they want to a great extent because of the flexibility in the marketplace for portfolio sales. Some institutions buy strictly for their own account and work on a “common sense approach”. Non-conforming lenders have less flexibility here and many are now credit score driven (no flexibility.)
When you do a simo deal (as the seller) and sell the note directly, you retain a certain level of control in the deal. You are not at the mercy of another company (mortgage broker) depending on another company (lender) to come through to make the deal work. After all, isn’t controlling the deal what CRE is all about?
There is a definate ballance between getting cash upfront and getting income stream for a long time.
From what little I know about your situation, You might consider refi’ing your expenses out, and sell on a wrap or CFD. I know that the laws for CFD’s are different in IL than they are here, but i think you will still be better off than selling on a normal wrap in the case of non-payment. While I believe both require foreclosure to get the person out, when the resident mentally knows that they are not on the title are less likely to fight hard to stay untill they are kicked out by the law!
There are people that buy CFD depending on the values of the notes (a 20K) CFD is hard to find a buyer for. It is simliar for notes as well.
Seasoning the note or CFD for 6 months to a year will increase its value considerably (sp?)
Hugh, Of course, if you just want out, I’ll give ya 50 cents on the dollar for what you got in it and I’ll do all the worrying for you (smile)
I see my original post was “displaced” below?.so I thought I would sum that post up one more time.
I have been unable to satisfy myself that creating a note and selling at closing puts more money in my pocket than simply doing a “non-conforming” loan. My impression is that the discount on this newly created note plus the closing costs, exceeds the closing costs of a non-conforming loan. I will add that I’m open to correction on this point if someone cares to show me the error of my ways. Further, it doesn’t look to me like this process of selling a newly created note is either easier or more convenient than doing a non-conforming loan.
As you undoubtedly know, there are a wide variety of different possibilities in the “non-conforming” loan market for different borrowers. There are programs ranging from 100% financing for owner-occupants with good credit but no downpayment, to programs which combine a downpayment with seller assistance through carrying a second for people with credit issues. There are also “stated income” programs available.
My belief is that you can create advertising involving the above programs which will produce a similar response to an owner-finance ad.
Re: Seller Finance Newbies–Need Your Advice - Posted by Max W. (VA)
Posted by Max W. (VA) on May 18, 1999 at 12:48:44:
All of the options you mentioned are possible but I prefer creating Firsts and Second Notes and then selling the First @ closing for cash (simultaneous closings.) The larger the downpayment you can get, the better. Most institutions like to see at least 5-10% down.
I would reccomend working with an experienced note broker or directly with an institutional buyer and have them help you structure a transaction for a particular buyer that will minimize your discount.
Contracts for Deed are bought and sold by some individuals and institutions but are not nearly as marketable as Notes.
My experience has been that the credit is more important than the income or job stability. Many institutions just want to make sure that the income is is enough for the buyer to be able to afford the payments. The economy is good now and anyone that wants to work can work. We don’t really see ratios come into play with these deals.
Once you or your agent advertises the property as “Owner Financed”, the phone WILL ring. It is not uncommon to sell a little over market value due to the attractive terms you can offer. An appraisal is generally required on these deals and the ITV (investment to value) is generally calculated off of the lower of the sales price or appraisal. An 80% ITV is generally what most institutions like to be at or below for “average” owner occupied, single family deals.
I have been doing cookie-cutter deals like this for three years (full-time) and it works!
If you e-mail me your name and address I’ll send you a copy of “How to Sell Your home in two weeks” This booklet would show you what you need to know regarding seller finance.