standards for holding a second - Posted by Jason

Posted by Tim Fierro (Tacoma, WA) on April 13, 2002 at 17:32:48:

And Jason can have the buyer pay for the attorney fee to draw up the papers as part of the buyer’s closing costs. Jason isn’t asking for a carry back, the buyer is. So let the buyer pay for it.

standards for holding a second - Posted by Jason

Posted by Jason on April 13, 2002 at 12:59:11:

I have a house that i’m selling and my lender can only get the buyer qualified for an 85% loan. With the buyers 5% down I will have to hold a second of 10%. Here are the actual numbers.
retail $142000
down payment $7000
85% loan $120700
second I will hold $14300

What are some of the basic guidelines for creating a second so that I will get the best deal and protection (if any) from future foreclosures? I’m asking about interest rate, term, balloon or not, how long till balloon, how to make payments (interest only till balloon). My biggest fear is having to go and reinstate the first or buy it in case of foreclosure on the first. This is my first second, that’s why I’m a little nervous and I know there are some things I will not be able to get around in constructing and holding a second.
Thanks for any help!!!

Re: standards for holding a second - Posted by GL(ON)

Posted by GL(ON) on April 13, 2002 at 16:28:29:

They are only asking for 10% as a mortgage. Is it a good deal otherwise? Would you have to sell for 10% less to get an all cash deal? Is it worth it to put a deal together?

If it is a good deal, and you want to sell now and not take a chance on getting another buyer with all cash, then look at whatever you get on the mortgage as a bonus. In other words you can afford to be a little bit chancy.

I don’t mean you should be careless, I just mean you shouldn’t lie awake nights tossing and turning.

You need to find out what the going rate is and negotiate the rest with your buyer. Will he have the money to pay you off in a year or 2? In any case inflation should make it possible to refinance and pay you off in 5 years, if not sooner. So a term of 1 or 2 years, up to 5 years should be good.

Interest rates are low now. A second at 10% or 12% would be a good deal for you, where else can you invest your money for that kind of return?

Your protection from future foreclosure is the character of the buyer, and how much real estate goes up in the future.

Have a good real estate lawyer draw up the mortgage papers for you. It will cost money but it may save you $$$$ in the long run.

If the buyer defaults you will have the choice of picking up the first mortgage and taking back the house, or letting it go and taking your chance on ever getting any money.

There is always a chance the mortgage will end up worthless, though you will collect a few payments on the way. But most of the time you will collect every penny with interest. Or possibly get back the house worth more money than it is now.

Re: standards for holding a second - Posted by Brent_IL

Posted by Brent_IL on April 13, 2002 at 13:41:26:

They might try another lender.

You are rightfully concerned about being behind the first. Regardless of the note terms, a note having a position above 80% of FMV will not have much value if your sellers default. That’s why they are called “throw-away” seconds. I’d ask the lender what has to happen for them to cash you out, and adjust the balloon time to match.

Look into using a 97% FHA loan and rolling closing costs into the loan. Their monthly payment will be higher, but it will free up additional cash to give you.

Are these your only possible buyers? Could you drop your asking price to attract other buyers who could qualify?