creative financing, second mortgage

[billy9596]

I have a property I am looking to sell with possible owner financing, the price would be 100K, 50K first mortgage and I hold the second @ 50K. How does this work? Who would I see  about writing this up properly and legally. Also what are the downfalls of this type of financing? Any other info. would be greatly appreciated.

Thanks Billy

P.S. any good books on the subject?

[jcmay]

Do you already have a buyer that needs this creative financing or was it something you wanted to advertise for the sale to make it look more attractive?

Assuming the buyer is acquiring a conventional loan for the first $50K, make sure your buyer qualifies for 100% CLTV  because the lender will see that they are getting a second somewhere else at 100% financing.  The rate will be based on 50% LTV but the qualification guidelines may be based on 100% CLTV.  If you thought to do the second $50K outside of escrow by just tacking a second lien on the property, the lender will still question where the down payment of $50K is coming from because the purchase price will state $100K.  Make sure all your ducks are in a row.

The downside would be if your buyer couldn't make the mortgage payments, and since you're in second position, any proceeds from a forced sale would go to the first position holder first.  If there is any left over, then you would get it, unless there are unpaid property taxes as well.

If someone with better knowledge reads this and I'm wrong, by all means, please correct me.

[christopher w]

JC,

There are many lenders who will allow 100% CLTV if there is a seller second involved. Their pricing will be based soley on the LTV of the first lien. You are correct though regarding the second lien being in second position.

Billy,

Your second lien should be somewhere between 10-25%. 50% may throw up a red flag. Also, you will need to write up a note and a deed of trust for the buyer to sign. I have a copy of one that I give my customers. I will be happy to email a copy of it to you as a guideline for you to create your own.

[jcmay]

Hi Chris:  I know the pricing will be solely based on the 50% LTV, but  won't the underwriting guidelines be based on 100% CLTV since this is 100% financing?  I believe guidelines change as the CLTV increases, particulary the minimum credit score required for a 50% CLTV vs. 100% CLTV.  Also, the seller has to make sure the DTI includes the second mtg. payment.  This is what I meant by making sure all his/her ducks are in a row.

Chris, I noticed you were a loan officer/broker in Texas.  I'm in CA but I've been investing mainly in Dallas, Grand Prairie, Garland, Mesquite, Arlington.  I just came back from there last night with 2 properties under contract.

I hope my response didn't sound argumentative.  I only mention it so I could be corrected if I'm wrong.  Thanks!

[christopher w]

JC,

No offense taken at all. You are totally correct in all aspects. Some lenders will not allow 100% CLTV due to credit scores, but there are many who don't care at all. Argent Mortgage for example will allow 100% CLTV on investment properties if the seller will carry a second, but Argent will only lend to the LTV that  the buyers credit score qualifies for. For example if a buyer only qualifies for 85% LTV because of a credit score issue they are going to only allow for an 85-15 CLTV or less. You were also correct about the DTI it does get calculated in. I personally love seller seconds. As long as all documents are typed correctly, and the title company records the lien then this is a very easy method for saving deals that otherwise seemed dead.

California investors are all over Texas nowadays. I am doing a couple of pre-construction investment properties for a couple of heavy hitters in Redondo Beach right now. Las Vegas investors are starting to get a foot hold as well.

Shoot me an email if I can ever help you out in this area.

[jcmay]

That information was a wealth of knowledge!!  Thank you so much.  In fact, I'm a Realtor/Loan Officer myself in CA but you obviously have done a lot more conventional investor loans than I have.  I didn't know Argent did 100% investor loans if the seller carried the second.  My investments are private money so I've never had to deal with conventional lending on my investments.  However, one of the properties I acquired during this trip will be conventional (but I'm putting 10% down).  I got the approval today.

I may need your assistance sooner than you think.  I wish I could do loans in Texas for me and my clients but I would have to be licensed there.  My realtors in Texas all have a good number of CA investors too.  CA home prices are so high and with the rising rates, it has become real hard to have positive cash flow.

[christopher w]

JC,

If you need good low priced investment homes let me know. I have a couple of builders and agents I can put you in touch with right away. They are always trying to clear their books which helps me in the long run because I am handling the spec loans.

[billy9596]

christopher,  

thanks for the help, please call me , I left my # on your machine

thanks Billy