Hello,
I am very new in the business and I got into it because a dear friend was purchasing her house, she thought her financing is all good to go but the lender just sent a message he cant finance the loan because her credit score dropped to 620.
She cried and heart broken she asked me for help and I thought about it long and hard…I have the money sitting in the bank, not earning any interest, so why not fund her house purchase.
I went online and read all I can about mortgages, deeds but I am nervous about it because it is a huge amount of money and I do not want to make a mistake and lose it.
Now, I went ahead and formed an LLC, to legitimize the business, and went online and got an EIN from IRS.
Now what???
The money I was planning to use is from my savings- $130k and I also have a HELOC for 35k here’s my question.
In funding the business, can I lend the money to the LLC the whole 165k and charge an interest?
Who prepares the terms of the loan? How do I give the instructions to the settlement agent?
Can I use the Uniform Residential Loan Application ( fanniemae ) to get all the buyers information?
Am I allowed to charge discount points? Is there a limit?
I am shying away from collecting escrow ( tax and Insurance ) and I would like to give her the option to pay interest only to refinance in one year in order for me to get my money back. Please give me some advice on this…Pro and Con.
I also am planning to charge her extension fee just in case she does not refinance in one year.
In the event of foreclosure, do I get only what he owed? and give her back the equity?
for example:
My friend will be putting down 10% purchase price is 182k so I will be financing 163k
If she defaulted in our agreement and I foreclosed, sell the property for 245k , After recovering the full amount I financed, is she entitle to get the extra proceeds from the sale?
I appreciate some feedback from the ones who already done this sort of thing…And also by the way I am located in Virginia. The house is in Virginia Beach.
Hey Yokee, it sounds like I need some rich friends like you. If your friend defaults, she loses her 30 Grand down payment, she loses her equity, you have much to gain, especially if the property continues to increase in value.
But I wud put the Title in your name, maybe lease purchase it to your friend till it’s paid off, perhaps have an attorney draw something up.
Good luck.
Rando
Yokee, because of Obama, his cronies, and their Dodd/Frank crap-laws, you can’t ‘just’ finance any old residential buyer without first subjugating yourself, and then your buyer to your state’s “SAFE” act laws. And these are not the same laws as the Frank/Dodd federal regulations currently in place across the nation, that limit your loan terms.
Worse, if you haven’t properly qualified your buyer through a licensed loan originator, and your buyer “decides” to default, your buyer can also sue you for failing to qualify him, and demand the return of all monies paid to you, including principal, interest, insurance, taxes, legal, closing, and escrow fees.
Just to add insult to injury, you must finance your buyer for 30 years at a fixed rate, and wait for him to ‘feel’ like paying you off early (or build in some incentive).
Just saying.
Some states provide a reprieve to one-time seller-financiers against the SAFE Act and Frank/Dodd. And there’s ways to create more ‘one-time’ deals using straw sellers, but that’s for another posting.
The danger in all this, is failing to know the law, and getting in bed with someone who does know, and who wants to screw you like you were a Chinese prison-orphan.
Javipa,
You made me laugh about your “Chinese prison-orphan” comment. he he he because I am part Chinese. But you made excellent points and these are exactly what I want to know. Potential pitfalls.
Also, I am wondering if the purchaser can apply for HELOC and take as much equity as she can, then ride the payments for months before I can legally file to the courts to foreclose- 3mos to 1 year long. After that I found out I am in the hole because they took loan against the property or worst, It created a mountain of liens against it from many creditors. Is this scenario even possible?
Randoskie,
I cant take the title and then lease the house to her because the contract is already written and ratified for her and it cannot be assigned. If she makes any modification or assign the contract to me, the seller can withdraw and offer it to the next bidder.
Yokee
Yokee, Jay and Rando are top notch and give great advice but I have a question for you! Your friend you say has a 620 Fico mid score and you should know your friend needs a new mortgage broker because she / he can get financed with a 620 Fico score, in fact VA, FHA and USDA will make loans down to 550 Fico Mid Score.
Now if there is an issue that is keeping her or him from qualifying to borrow the new mortgage, do you really want to be the lender?
If your friend has the right income, longevity at work, no current bad debt and everything else fit’s then she / he (Your Friend) can get the loan and needs to call and find a new mortgage broker!
There are way to many issues trying to loan money as a conventional type lender! Jay has highlighted a few, a lot can go wrong quickly if your not prepared upfront, tell your friend to get a new broker and save your friendship, other wise prepare to look for new friends!
GR,
I’ve known her for many years, she is self employed and because of that, income is very difficult to document. She currently own a condo which is put up for sale, and once sold, will have at least 20k in seller equity proceeds, after paying all cost. Financially, she can afford the mortgage- but really difficult to document to meet a conventional mortgage standards
I am planning to finance her only for 1 year- ( she actually is asking only for 6 mos ) but it will be more advantageous for me if she holds the loan for at least 1 year. I will be earning interest of 810.00 a month while she hold the mortgage. Rather than the money sits in the bank and earn close to nothing.
I read about the SAFE act- Frank Dodd laws for consumer protection requirements, It seems that here in Virginia I will be exempt for the application or licensure - but I will definitely check this with a real estate lawyer if indeed I will need to be licensed to lend. It looks like, if you lend several times a year- more than 3 times ( fund three mortgages or more in the same calendar year ) then license is required and also must pass a test or lender certification. I do not have the money to lend several mortgages - after I funded her. This is all the money I got.
Jay also mentioned about properly qualifying the client- This is what I am researching now. Does qualifying document signed and disclosed to her suffice? I will have her sign a document/disclosure similar to Good Faith Estimate, where I disclose the terms, and if she agreed to all terms, will be a legal form submitted to the settlement agent at closing. In the disclosure I will include computations, qualifying ratios which are specific to her case.
Do you think that will be enough to show that I used a certain criteria in approving her financing? Will that be enough to cure or to address the qualifying issue?
Also, if I become successful and get enough experience doing this, I plan to continue in funding others with caution of course. What are your thoughts?
Is there anything else I need to be aware of…? I am so open to suggestions and comments from all in this forum - I am reading great comments from people who already have the experience and that for me is PRICELESS.