What are some creative ways around this

Question

Here is my situation. i have found a seller who is willing to take 10% cash up front and owner finance 10%.  I would get a loan for the other 80%.

The problem I am running into is that I cant find a bank who will lend on the property unless I put down the entire 20%.

How can I get around this?

Vincent Polisi · Answer

Stephen:

Without sounding condescending, you need to get some professional guidance from a hard core experienced investor that you trust prior to proceeding.

In this market, you've got too much cash going in to the deal.

Depending on what you are trying to accomplish with this deal, you may need to walk away from this particular property.

Here's why, given the state of the current market, if you know what you are doing, you can easily get sellers to do variants of owner finance deals with NOTHING other than receipt of the first month's lease or interest payment (depending on whether you are doing a lease option, lease purchase, subject to the existing mortgage or contract for deed transaction).

Yes, you read that correctly. No down payment of any kind.

On any given day, we have between $30 Million and $40 Millon dollars worth of property under option contracts with the seller receiving nothing other than the first month's lease or interest payment upon us exercising the option and renting/selling it to a third party tenant/buyer. We do not absorb or assume any expense associated with the property and have no carry cost while we are matching buyers to the property.

Why would they do this?

They are ecstatic to have someone cover the debt service, carrying cost and maintenance and repairs who will eventually qualify for a mortgage and take them out. Living to fight another day always trumps foreclosure and bankruptcy if you are a seller carrying a vacant property.

We do not option homes in need of regentrification or rehab. These are AAA caliber prime properties in prime locations with option contracts presently in place on properties with values from about $175,000 to $2.5 million.

If you are going to do any variant of an owner finance deal, you need to put a clause in the contract requiring proof that the mortgage is current PRIOR to any money changing hands AND on a monthly basis thereafter with an additional provision enabling you to wrestle control of payment away from the seller in the event they decide to take your money and not pay the mortgage. Or, alternatively, have payments made to a third party real estate attorney who will make the payments directly to the mortgage company on behalf of the seller. People who have been paying their rent on time are getting evicted everyday because the sellers are not paying the mortgage and the properties end up in foreclosure.

In this market, 10% down is entirely too much down on an owner finance deal (unless you are the seller getting the 10% of course).
It simply isn't necessary.

The fastest path to acquiring this property is going to be to negotiate an owner finance deal and eliminate the need for a third party lender. You could have this deal wrapped up this afternoon and be moving in tonight (if this is a primary residence deal) or market it and rent or sell it to someone else tomorrow (if this is for investment purposes).

Before you part with the 10% downstroke that could be used on other deals or for something else, you should definitely consider what your options are other than conventional mortgage financing or hard money private financing.

Hope this helps.

Richard David · Answer

Your best bet is to purchase the property at its full appraised value. [SOLICITATION REMOVED]

Nathan Santana · Answer

Ever thought about exploring private banking? [SOLICITATION REMOVED]

Daniel Garcia · Answer

CLTV issues are always going to come up if you use a lender that will sell the loan.  You will have a better chance with a small bank or credit union that will keep the loan in their portfolio.

Jon Holdman · Answer

Get the seller to carry the whole thing.  Conventional lenders want to see YOUR skin in the game.

Christopher Wallace · Answer

You will have to find a private lender that will finance the 80%. Conventional financing is not going to happen. Once you have the two notes in place you can do a no-seasoning conventional refinance.