I understand your point about the second. That’s why I said it would depend on the borrower and amount of the second. If its a low end property 10% of that at the higher rate may not make that much difference if were talking a few thousand. Then also, what about amortizing the second out over a longer term with a balloon to get a higher rate and keep the payment lower for the buyer to keep within the guideline of qualifying income wise?
Also, since the buyer is the one that approached the seller with the idea of doing an 80/10/10, I’m was assuming he probably has already been pre-qualified to get this type of loan. If that was the case wouldn’t the lender already have committed on an interest rate the buyer would be able to get or would they still come back and try to get a higher rate because of what the sellers second is?
Buyer has approached me about taking a second of about 10% of value with 10% down and an 80% first mortgage from a bank. What kind of interest rates are other getting in this kind of situation? There will be a 5 year balloon. Thanks.
You should also be lookling at your intent for the note. Reselling the note is more difficult without some aging. Someone with an 80% 8 3/4 FHA loan may still have dings and force the return a notebuyer wants to 14% or greater. If you are going to keep it then a 12% return is reasonable. However the most important thing may be you ability to control in case of default. Be able to find out if the first is not paid immediately, not 4 or 5 months later. Third party collection of both payments is a good idea. A good mortgage broker should be able to get them an 80-10-10 to avoid PMI. If he can’t then your risk is higher.
I misunderstood the post, JohnBoy brought it to my attention.
JohnBoy also gave you an honest answer as to what he would charge. I agree
with JohnBoy, you charge what ever the market bears.
However I would be careful to take JohnBoys advice. You see if I were doing
a seller carry back where the borrower is assuming my loan and giving me a
cash difference between my loan and what I’m carrying back, I would do as
JohnBoy recommended.
But what a lot of people don’t realize is that, if you charge a high rate for the
Seller carried back second. The lender making the first takes note to that.
If your charging 14%, the lender actually becomes jealous and also wants a higher
rate. So they will do everything they can to discredit the borrower in order to get that rate.
They will find things wrong with the file, in order to justify charging him more.
In some cases I’ve seen a bank not make a loan, because they felt the borrower was being
taken advantage of, or wasn’t using good judgment.
Last but not least. You have to be careful that if you carry the seller at a higher rate, you
may jeopardize him getting his loan, because the bank will count the payment on the second
along with the first, and by accident, you may have thrown him out of budget to qualify for
the first.
Actually you would do fine as far as rates are concerned, due to you structured
the deal at 80% LTV and the loan would not require PMI( Private Mortgage Insurance).
Assuming you qualify for a Fannie Mae/ Freddie Mac loan. You could expect a fixed
loan in the 8.1/2 to 8.3/4 range no balloon. If payments are a concern, there are other
programs available that are adjustable, with of course a lesser payment.
I think what David is asking is what would be a fair rate for him to charge on the 10% second he would be carrying for the buyer? I would want a minimum of 11% and up to 14% depending on the buyer, amount, terms, etc.
You’re right, I completely misunderstood the post. Thanks, for bringing it
to my attention. You also might want to look at my answer as to my
correction, it will give you something to think about.
I notice you’re back answering questions, and are doing a great job John.
It’s people like you that make this forum what it is, so keep it up.
