We have found a house that a bank will not finance because it is considered uninhabitable right now. The owner is aware of this and is will to considering financing it while we get it in bank financeable condition. What type of finance should we look at from the seller?
Land contract, balloon or something else? There is a lot of rehab to be done and we would like to put as little money into financing right now as possible. Any suggestions are appreciated.
Posted by: mascrub Posted on: Today at 03:50:19pm
We have found a house that a bank will not finance because it is considered uninhabitable right now. The owner is aware of this and is will to considering financing it while we get it in bank financeable condition.
Fantastic way of being creative and this way it is less expensive then using a hard money lender or Private investor
What type of finance should we look at from the seller?
Is there a mortgage on this house already? Well if there is you could do a Wrap around mortgage or a Land Contract would be ok also.
Land contract, balloon or something else?
A balloon note would work just fine if you are planning on selling it or refinancing after you get it in financing condition.
If you are going to refinance it to keep it long term I would have a balloon longer than 6-8 months so that you can get around being stung by no sesoning refinances especially if you are planning on getting cash out.
If you are going to flip it you wil not have that to worry about unless you plan on selling it to a buyer that needs a FHA loan then you will need to be on title for 90Days plus.
There is a lot of rehab to be done and we would like to put as little money into financing right now as possible.
get terms as low as possible because that will help your bottom line and 8%-11% are the norms for seller financing in my area so just work out terms that are win win for both of you.
thanks. there is no mortgage on the house. I was just wondering if it is reasonable to offer a monthly payment and add 10% to that or if we do a full amortization type deal and end up paying the owner just as we would a bank. For example, say we pay 1100 per month with 1000 our payment and 100 interest. Is it possible to work something like this or do we need to work like a bank and pay 1100 with 100 per month being the payment toward principle and 1000 interest?
Is that still considered a land contract or contract for deed?
If i were in your situation I would ask if he were willing to have a dry closing now with financing upon the issuance of a temp or perm c of o. also that he signs a net lease with a percentage of the rent to be held in escrow to be applied towards the amount due at final closing. no sense in paying mortgage for property that is uninhabitable or not generating any income especially when the status of it is uncertain.
Since it is owner financing you have several different creative alternatives. Sounds like you have the cash for the rehab. The first thing you want to do is to get the deed in your name. Contracts and LO are great but the deed is 100’s times better. In deed of trust states the seller will get a note and deed of trust to secure the owner financing as well as a Vendors Lien recorded on the warranty deed.
Now for the payments on the note. You can ask the seller for a zero % interest loan with no payments over the life of the loan. A balloon payment to the seller would be on order to correspond with your exit plan. If you are buying to keep then that would be when you refinance or if you are fixing to resell then you may want to pay the seller off when you sell and not bother to refinance.
If the seller wants payments you may offer principal payments with no interest. You are right interest is expensive and zero interest if cheap so do not discuss the rate but just the payments if they have to have money monthly.
Has the seller asked for a down payment? If you can not afford a down payment and rehab costs you may consider escrow of the repair funds and to be released to you and the contractor after the work is completed. Something like this will help the seller feel more comfortable that the property will get fixed up.
Any combination of the above can be worked out between you and the seller. Best to just sit face to face and work out the details where you both win
thanks for the advice. We are going to sit down with the owners and an attorney to discuss terms of the loan. offering 0% would be excellent as would no payments until we balloon the loan when the house is habitable.