I found a home in my area. Beginning of a short sale. She owes the bank $121k. ARV $220-240k. Its not listed yet but the realtor called me and told me about the deal. She said if i would buy this house that she would owner finance. My question is, my credit isnt great. I contacted a Private Lender. They charge 3 points and 11%. Is that too high to have a loan for the long run or can you refi after a couple of yrs ? I dont know if i should put it under contract and wholesale it out, Rehab would need like a new kitchen and cosmetic things in the house,nothing major. Any advice plz, Thnx.
That money is too expensive to buy and hold more than a few months. Private money, if cheap enough AND long enough makes sense. I use private money occasionally, but the downside for me is short term loans that have to paid off timely. I just paid off one that was 90K, and it took me about 14 months. It was handshake money, so saved a few bucks on recording fees, etc, but expensive in the long run. You may be able to refi out of it, but it will depend on your credit, etc.
First best option is to take the owner financing if it's real because there seems to be a lot of equity in the property. As an aside, I don't understand how it will work because if she owes the bank 121K, why wouldn't she just catch it up and keep the property if she's able to owner finance. Most mortgages have a due on sale clause, so if she sells the property to you and holds the paper she's going to have to pay the existing mortgage off so she can take first position and if she's in pre-foreclosure, that's unlikely; but stranger things have happened.
Second option depends on how bad your credit really is.
If you don't have a 650 middle credit score and your rental/mortgage history is worse than 2x30, wholesale it because you won't have a viable exit strategy from the hard money.
If your credit is just a bit beat up and your score is above 650 with 0x30 on your rental/mortgage history, then tie the property up with the hard money (good price for hard money by the way), do the repairs and then refinance out of the hard money into a middle tier, no seasoning on title product at around 8% with a 30 year amortization for cash flow.
Hope that helps
Thank you all for your advice. I think im going to put it under contract and wholesale it out.
@Felix Rivera if you decide to whole sale it let me know im down in rockland, is it an approved short sale. Can you pm me some info on the property, how many beds sqft baths etc
I'm going to agree with @John Thedford here. If it's a straight buy & hold, those terms are too high. 11% and 3 points is something you see with hard money lenders, which are short term.
We don't know enough about your specific creditworthiness to really say where you would land or if obtaining long-term financing is on the table, but typically buy & holder, non-bank, lenders like to see a fico of 600 and above (some want 650 and up), the property to have a DSCR of 1.25x, minimum loan amount of $75-$100k (depending on the lender), and you can't have any foreclosure/bankruptcies in the last 2-6 years (depending on the lender).
If you're going to rehab, even if it's nothing major, I would consider doing a bridge loan. It will be short term (12 months), of interest-only payments, and the rate would be 10%-14% depending mostly on the LTV, your FICO, and your experience. Once you fix it up and rent it out, you can refinance (with no pre-payment penalty) into a longer term loan at hopefully 7%-9.5% and 1-2 points at closing.
@Stephanie Potter makes some great points.
@Felix Rivera If there are any doubts about the financing side or this particular loan, definitely better to wholesale! Never want to be in a bad position with a lender.
More than likely there will be a time limit you must own the house before resale. More than likely they will not allow an assignment. An experienced agent won't fall for that trick.
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