Posted by David on September 07, 2003 at 11:10:52:
I understand that if the deal were a lease option, or a land contract, then the seller’s bank would add the debt and the rent income to the seller’s debt/equity ratio. And sellers should prefer that, anyway, since in a leasse option or land contract, I would imagine they keep the tax deduction on the property. The deal here, though , is a subject to deal. Wouldn’t a bank consider it fraudulent if they were given a land contract, when title had already passed on the seller’s property? Please someone tell me I’m missing something.
Hypothetical situation, Seller wants to build new home and needs to sell current home. He has only been in the house for about a year and has maybe a couple of thousand in equity. If he sells the home to an investor “subject to”, how will he be able to qualify for a new mortgage since the old mortgage will still be in his name. Seller’s credit is good, but not strong enough to qualify for two mortgages. Does he have any other options for selling the home, other than selling straight out? Thanks in advance for your help.
Posted by T.Byrd on September 07, 2003 at 02:11:05:
I recently asked my banker about a similar situation w/my home. she said if I had a 1year signed lease contract on my current home, she would discount that monthly payment by 25%,compare the balance to the existing mortgage payment, and either add or subtract any difference to my income in considering my qualifying for a new mortgage on another home.
My thought is to use land contract or lease option w/this in mind.
also, if you back out the numbers and the 75% remaining reduces your income toward the new mortgage,consider increasing the contracted monthly lease payment to make the numbers work, but then have an “prompt payment credit” addendum seperate from the lease contract that states the buyer will receive a
monthly "prompt payment"credit for paying on time, thereby bringing the monthly payments back down into
market range in the eyes of the buyer.
Posted by David on September 06, 2003 at 10:07:09:
I heard Charlie and Randy France at the Ohio REIA last fall, and I bought their course. The answer they gave, without the form, is to give the seller a land contract. This makes no sense to me, since a land contract, I think, means that title stayed with the seller until payments are made. In a subject to situation, title has already passed before any payments are made, right? Isn’t this the effect of “getting the deed”? So, if you give a land contract to the seller’s bank saying that title hasn’t passed, when in fact it has, is there any adverse consequence? I would think so, but there are Charlie and Randi, still going to town.
Posted by Shambhu Nath on September 06, 2003 at 15:53:37:
The lender will look into both mortgages for qualification purpose. You may be able to offset some of the debt obligation by showing extra income from the contract. Some lenders will consider that depending on how long the payment has been received.