Can I buy this house with this plan?

Although I recently worked as a mortgage loan originator for about 3 years prior to the subprime thing, I’m a newbie to creative financing. I have the opportunity to purchase a townhouse in Scottsdale, Arizona in a highly-desirable location called McCormick Ranch within a gate-guarded community. The property will appraise for $417,000 or more (recent comps show the same floor plan listed as high as $450,000).

This property was constructed around 1979-80, and has nearly all original fixtures. Despite the fact it’s in good condition, it could use some updating and TLC.

The home can be purchased for $349,900, and the seller will do a wrap on his existing first mortgage. I would need $20,000 to complete the purchase. I would live in the home while updating and/or rehabbing it. In all likelihood, I would stay in the home and not flip it.

Is borrowing $20,000 secured by a 2nd mortgage, and then refinancing in 12 to 24 months to take the 1st and 2nd mortgages out… a realistic approach to acquiring this property? Are there other options or techniques to consider or try? Any advice or tips would be greatly appreciated.

You may have trouble when it comes time to refinance the property because of a thing called “continuity of obligation”. You will need to be on the note for the property for you to be able to refinance the property out of the wrap. Now your seller may have a note in place for you, however once the UW reviews title and sees that their is an underlying note at that point they may ask for more documentation. Items like the current deed of trust betwen the seller and his original lender or something as simple as 12 months cancelled checks showing ontime payments. Also keep in mind that the current owners lender can invoke the due on sale clause and call the note due if they find out that the title was changed without a sale of the property. I am not trying to scare you I am just trying to point out some possible snags.

Thanks Christopher… good things of which to be aware and understand.

A red flag for me is the fact that you are looking at listing price - I think that in this market that is the last thing I would be looking at. My friend is looking at a condo in the desert in CA. The average listing price for the same model is $300,000. Of course, the bank-owned property she might be buying is 215,000. She considers it a great deal, what is going to happen when she purchases that property and then she will bring all the comps down? those listing prices will be irrelevant. Even if you only have to spend $17,000 to update the home, you are only getting around 13% off of appraised value.
Latest predictions on CNN is that the Phoenix market will decrease 18% in the next year. I know Scottsdale is a great area but is close enough to be impacted in some way- so I just wanted to give you my opinion, that this does not seem like a great deal to me, even though your question was about the financing. Good Luck!!

Thanks for the comment and insight. From where I’m at… trying to get into the market… I’d like to see prices come down. But, in reality it just doesn’t seem to be happening to the extent that’s being reported. Parts of Phoenix are without a doubt seeing depreciating values and lower prices. In Scottsdale, mostly due to financing issues… the effect seems to be that it takes more work and creativity to both sell and buy property. But, prices are still high and double or more what they were 5 years ago.