Land Instalment Contract
Through a Land Instalment contract, took over payments of a house in MD in 2019. Currently, $260,000 are still owed on the mortgage. Did a remodel on it and have been renting it out for the past two years. $2,700 rental on a $1,700 mortgage.
House has gone up in value about $110,000 and is now worth around $450,000 Wanted to do a refinance to cash out to invest in other properties, but lenders are telling me I can't refinance because title is not in my name.
Basically they are saying I have two options.
1- Do a first loan where I purchase the house and then a second loan to refinance.
2- Pay the house off and then refinance.
Any suggestions?
Correct, you do not own the house. How do you have insurance? How do you show this on your taxes?
Purchase the house for $265000 to cover the costs and refinance conventional in six months. Use the same lender so they give you Lender credit for the second transaction.
Thank you Caroline. Yes, that is the option most lenders have offered (2 separate loans). That is what I was trying to avoid because the first loan would require an additional down payment (taking money out of my pocket rather than obtaining new funds to invest with). The whole purpose of the exercise was to obtain funds to invest in more properties. If I have to put more money into the deal, I might as well just leave it as is and let itself continue paying itself down.
I think the answer here is a solid "it depends". I have bought and sold many houses and pieces of land on "land installment contract" aka contract for deed, agreement for sale, or many other terms that can be used. It's going to depend a lot on the paperwork used. Is the "land installment contract" recorded with the county recorder? What you are describing above sound very much like a "wrap" or what in my state is referred to more officially as an "all inclusive deed of trust". I've found a lot of lenders (and underwriters) do not understand this very well and their default answer is "no". Would the same lender say that you don't have the right to sell the same property? Personally I'd review the documents used to acquire the property, with an attorney if necessary. I'd also be talking to a different lender.
Ive worked on many land contract or installment contract (bond for deed is another name) deals.
To put it short, if you’ve paid 12 months on this installment agreement above you can consider this a straight shot refinance (you have equitable interest in the property and per agreement you are equitable owner just not legal title owner ..yet).
If you’ve paid less than 12 months this would be considered a purchase by Fannie Mae and yes you’d have to purchase first then refinance. But someone telling you that you must do two transitions is just providing bad advice because the question is what specific law, guideline, or stipulation is requiring or preventing this ? This is the question I would ask.
Based on the above If you were our client, I would ask you how you’ve structured this land contract. I’d like to get a copy of it to review and ask you how long you’ve paid on this agreement.
The rest of the loan qualification process is like any other first time buyer loan just the land contract stipulation makes the deal have more “hair,” on it.
Best of luck on structuring your mortgage plan.
-
Lender Georgia (#1780583), Oregon (#1780583), Virginia (#1780583), Florida (#1780583), Oklahoma (#1780583), Colorado (#1780583), Washington (#1780583), California (#1780583), Texas (#1780583), Idaho (#1780583), and Tennessee (#1780583)
- Avenue One Capital Inc
#1 Insurance Contributor
- Insurance Agent
- Norwalk, CT
Grayson,
Caroline's post mentions Insurance. It got me thinking of what happens in the event of a large loss on the property such as a fire. Who is the first named insured on the policy, If you are not, are you the Mortgagee. Check with your agent on how the claim check will be made out. If you keep the policy that was on the home and did not add yourself, the claim check might be made out in just the former owners name. You have no control of what happens to the funds at that point.
Andrew Kiel: YES, this was recorded with the COunty. And yes, I have spoken with several lenders and they don't seem to understand the process
Originally posted by @Albert Bui:Ive worked on many land contract or installment contract (bond for deed is another name) deals.
To put it short, if you’ve paid 12 months on this installment agreement above you can consider this a straight shot refinance (you have equitable interest in the property and per agreement you are equitable owner just not legal title owner ..yet).
If you’ve paid less than 12 months this would be considered a purchase by Fannie Mae and yes you’d have to purchase first then refinance. But someone telling you that you must do two transitions is just providing bad advice because the question is what specific law, guideline, or stipulation is requiring or preventing this ? This is the question I would ask.
Based on the above If you were our client, I would ask you how you’ve structured this land contract. I’d like to get a copy of it to review and ask you how long you’ve paid on this agreement.
The rest of the loan qualification process is like any other first time buyer loan just the land contract stipulation makes the deal have more “hair,” on it.
Best of luck on structuring your mortgage plan.
Albert Bui. Thank you for your insight. Yes I have been paying for the mortgage since 2019, so it is way over 12 months of proven payments. If you send me your email, I can send you a copy of it. Please let me know
Originally posted by @John Mocker:Grayson,
Caroline's post mentions Insurance. It got me thinking of what happens in the event of a large loss on the property such as a fire. Who is the first named insured on the policy, If you are not, are you the Mortgagee. Check with your agent on how the claim check will be made out. If you keep the policy that was on the home and did not add yourself, the claim check might be made out in just the former owners name. You have no control of what happens to the funds at that point.
John, really had not taken the insurance part into account. As you say, with the insurance, I imagine that if anything happened it would definitely go to "the other" owner. Thank you for your observation. Will definitely look into this
John, really had not taken the insurance part into account. As you say, with the insurance, I imagine that if anything happened it would definitely go to "the other" owner. Thank you for your observation. Will definitely look into this
Grayson you call this a land installment contract but what you have is closer to lease with option to purchase. In a land installment contract the seller provides financing there is no outside lender. When you "closed" you didn't get title insurance. Liens that seller carries up and until today, not as of the day you closed can stick on the property. If seller dies you may have to go through probate or get the correct heirs to sign the transfer deed. I assume you have a contract with the seller in a safe somewhere but you still need the signatures on a current dated transfer deed if you wanted to sell or get a loan. If seller files BK you are in a whirlwind.
In keeping the title in the seller' name you saved on not paying: transfer taxes, increase in property taxes, title/escrow/attorney costs, cheaper insurance, loan fees etc.
Your income tax filings flag to the audit pile as no 1099 for interest or property tax bills flow to you.
If you change the insurance the existing lender sees the new name. If you and seller paid perfect history maybe no problem but if serviced by SPS or one of the aggressive servicers it's a smoke signal.
The loan structure you need can be accomplished with low cost if you qualify with income taxes and have a high middle FICO. Time to organize, free to call for ideas how to do a two 'fer cheap.
