Re: Sub2 & sellers net income ratio - Posted by JohnBoy
Posted by JohnBoy on April 14, 2002 at 20:41:03:
If the new lender treats it more like a rental they will only allow 75% of the payments to offset the buyers income. If they treat as a sale, which it is, then they will allow 100% of the payments which would be a wash on the borrowers debt ratios.
I haven’t heard of any lenders contacting the other lender about this. The borrower should only need to show the lender a copy of the contract showing the property has been sold.
The only time this can really become a problem is if the borrower tries to get new financing through the same lender. So always make sure they understand they need to get any new loans through another lender other than the one they have this loan through.
In most cases these buyers won’t be buying anything soon since they couldn’t afford the property they had which is the reaon they had to get rid of it in the first place. However there will be cases where you have a seller that needs to sell fast because they are relocating and will be buying another home. So in those cases the worst case is their lender will only allow 75% of the payment amount to be used to offset their debt ratios.
It’s no different than someone selling on a L/O or contract for deed and buying another home.
Only on a L/O they will almost always count it as rental income by allowing 75%.
When a contract for deed is involved they will usually allow 100% since they consider that a sale.