Seller Financing / Carry - 2nd position
I have some condos that I'm selling in Fort Smith, AR. My real estate agent is encouraging me to finance the entire purchase price (conventional mortgages are not available because of my concentration of ownership), but has reiterated to me several times that a buyer cannot get a bank loan with me carrying a small second. But she's not being clear on the why.
Is there some law against a seller carry - but only if the seller carries a partial note and not the entire thing? Because she definitely thinks I can carry the entire amount.
Thank you!
Little Rock, Northwest Arkansas, NWA (just some extra tags)
While I've never closed with a seller in second position, my preferred lender has said that his bank wouldn't care. We didn't make it to underwriting because of other factors, but I definitely think its allowed in Arkansas. It may be different with condos though.
Simcha, where are these condos and what are you wanting for them? I’m an investor in fort smith and I could inquire with my lenders if the deal makes sense to me.
Thanks
Jeff
If ownership concentration is the only issue, several non-QM lenders would lend on these condos either as an investment or as a primary residence.
@Simcha Davidman- most ( if not all ) lenders have LTV and CLTV guidelines for 2nd mortgage / helocs .....these sometimes include that the 2nd has to be an institutioanl 2nd ( and not a private note ) ...so betwween the ltv and cltv not fitting and your 2nds not be institutional - these will definitely be limiting factors in some cases
Condo's got 10x harder to close due to the collapse of a condo building in Florida recently. Look up Florida condo collapse. We were selling 15 condos during that time and all lending froze. I would go Non-QM that was suggested. Now are you selling or buying?
There are usually two LTV numbers at work, though most people only ever worry about the first one. There is LTV 'loan to value' which is how much a lender will lend, this is the one most people talk about. The other is CLTV or 'combined loan to value' which is a lender's way of managing risks if you're borrowing additional funds beyond what they are lending. This CLTV is usually lower to manage the increased risk of default, and if you default the increased issues of dealing with a defaulted 2nd loan etc. So you just need to explore what possible CLTV you may be looking at in order to sell these and carry back a portion of the financing.
Thanks everyone for your feedback! I guess my question is whether it's a legal issue or just a lender issue? Because I've spoken to lenders that would at least have a look, subject to CLTV viability.
@Jeff Ostrander I'll dm you. We should grab coffee next time I'm in town!
@John Herold please feel free to dm me with your contact info that I can forward to my RE agent. She's knows that banks can lend on it, but the terms (most importantly the down payment and balloon) are much less favorable. I assume this is the same as you're reference to non-QM. Perhaps your people can do better :)
@Ryan Blackstone I'm familiar with the Florida disaster. Scary stuff... I'm selling.
These are lender issues. If you can find a lender willing to accept a higher CLTV then you could sell with the carry back.
It basically a wrap note. A number of parts. There are risks and rewards. I have sold a number of houses on wraps. It not for everyone and I’m glad.