Creative Financing Options With An Existing Mortgage

13 Replies

I am looking to do a deal on a home worth about $300,000 with an $80,000 mortgage remaining. Is there a way to combine sub-to and seller financing to make this deal work for the seller (assuming the numbers make profitable for me to rent the property)? I would like to remove the burden of the mortgage payment while also giving them some profit in the short term and offer a balloon payment in year 10. They will not accept the deal if it is just a subject-to offer in the amount to cover their mortgage payment. 

@Tyler Deuel ,

If you can get a loan for 75% of $300 ($210k on conventional terms) and pay off $80k and give the owner $130k in cash at settlement, would the owner be willing to hold the second note on the property for $80,000? It is secured by property (albeit 2nd position) and they aren't on the hook for the existing mortgage. How would your cash flow look there?

@Joe Gamatoria great suggestion. The only issue I see with that is the lender is going to have a problem with me financing the remaining 25% with a second mortgage. I have actually tried to put together deals like this in the past and they have been shut down by multiple lenders. They basically all wanted to see that I had skin in the game. It is my understanding that financing with a bank mortgage in 1st position and a seller carry back in 2nd position is something that was allowed prior to 2008 but has since died out. That is why I am looking to make something work without using a traditional lender. Please let me know if you know of any lenders that would allow what you are proposing. 

I am currently in escrow on a triplex using an fha mortgage + a seller carry back (second lien position)

Due to strict fha guidelines on 3-4 unit properties...I could only qualify for 517k with 5% down. The seller wanted 549k. We negotiated for about a month on and off and agreed to do a 517k loan and a carry back of 36k and the seller will cover closing costs.

My lender is a wholesale lender and is pretty savvy with creative financing. We are 11 days into escrow now and no red flags so far.

@Tyler Deuel , some lenders are less likely to take the equity as your cash contribution. Some will as long as they get to pick the appraiser. Others don't care as long as their first position is 75% LTV or less.

To give you an idea of popular lender criteria, check out https://www.11capitalfinance.com/

Click on "Product Sheet" and see all of the different options just on this sell sheet to understand where lenders are in the market today rather than 2008.

DISCLOSURE: I am currently evaluating a sales relationship with this company. I am providing this link for some insight into your question about today's lending market.

@Joe Gamatoria I spoke with 11capitalfinance today and they do not work with lenders that allow the deal to be structured in the way that was proposed. They mentioned they work with lenders that provide up to 5% seller carry back but no more than that. Not sure if I am missing something...It is also important to note that this a residential deal. 

I only need to know a couple of things to help make an offer: How much cash do they need? How much in 10 years? What's current mortgage payment? Is loan current? Is the taxes and insurance escrowed? What's the rate? How long has this loan been in existence? Is there a balloon or a rate adjustment? What term is left on note? What's it gonna rent for? Is house vacant? What's it gonna cost to get house rent ready? Why are they selling? What do they need cash for? Does this payment cause a bind on their monthly budget? Have they lived in house? Did they inherit it? How long have they owned it? What's the seller's basis? What do they do for a living? How old are they? Do they like to fish? They have kids? Hobbies? Do they own other investment real estate? How many seller's are there? Who signed on the current note? Do they like to travel? What's their favorite color? Have they had any other offers on house and what was wrong with the offer? Can this property be subdivided to get another buildable lot? What's seller's motivation? Besides cash, what would benefit the seller? .....That'll get me started. BTW, when I leave an appointment to buy something from a seller that will carry, I know the answer to most of these questions and more.

@Jason Dillard I know the answers to most of your questions. Very good screening information...however it does not solve the question at hand. I basically need to structure something that removes the burden of the seller's mortgage and pays them some monthly interest with a balloon payment in year 5 or 10.