We have a family member with a cabin that's willing to quit claim the deed to us and use seller financing to pay off the property. She owes 70k on the property. We'd like to pay off what she owes and we'd need a loan for that. Then pay her directly in monthly payments until she's paid off.
My lender seems to be confused about this and hasn't given me a straight answer about how we're going to do this. Anyone have any ideas on what the best way to buy this property would be? Thanks!
@Zachary Floyd if I am understanding your scenario correctly you would treat this as a purchase of a second home or a non-owner occupied property. You would be required to put money into the deal as a down payment. Get a first mortgage of $70,000 with a second mortgage from your friend/relative for the remainder of the purchase price.
For example:
Purchase Price: $150,000
10% down: $ 15,000
1st mtg: $ 70,000
2nd mtg: $ 65,000
The lender will base the ltv off the lesser of the purchase price or appraised value.
If you use private money there may be the option of a gift of equity for the down payment but most institutional and hard money lenders will not use a gift of equity.
@Zachary Floyd You need a lender that will allow a sell carry back loan on top of the 70k loan. Would be better if you could partner with someone who has $70k and then you don’t need a lender. Then you can work out the seller financing with an attorney and title company.
@Zachary Floyd You need a lender that will allow a sell carry back loan on top of the 70k loan. Would be better if you could partner with someone who has $70k and then you don’t need a lender. Then you can work out the seller financing with an attorney and title company.
Is this going to be a rental or a flip?
We don't have any partners with 70k currently but there's 4 of us who will be splitting the payment. It's going to be a rental. I understand the seller financing, just confused on how to take care of the balance. We thought we'd just get a loan to pay the balance off.
@Zachary Floyd So getting the loan for $70k to pay her balance off should be a fairly straight forward transaction. As mentioned above, you would have to get a lender that would allow a 2nd place seller financed mortgage. You may want to check with local banks or credit unions for that. I imagine any big banks (B of A, Chase, etc) wouldn't allow the 2nd.
@Zachary Floyd So getting the loan for $70k to pay her balance off should be a fairly straight forward transaction. As mentioned above, you would have to get a lender that would allow a 2nd place seller financed mortgage. You may want to check with local banks or credit unions for that. I imagine any big banks (B of A, Chase, etc) wouldn't allow the 2nd.
Would a 2nd mortgage be necessary if she's willing to quit claim the deed to us and take no interest payments? Ideally we just wanted to get a loan to pay off what she owes, she would quit claim the deed to us and we would have 2 payments, one for the 70k loan and one to her.
@Zachary Floyd If she's willing to do it as unsecured loan (so you're not recording a mortgage), that could work. Although I don't why a seller would be willing to do that, seems very risky.
The lender for the $70k would probably ask where the remaining balance is coming from. For example, if she's selling to you for $150k, they're going to ask about the other $80k, plus it's going to show on the closing statement (HUD).
@Zachary Floyd If she's willing to do it as unsecured loan (so you're not recording a mortgage), that could work. Although I don't why a seller would be willing to do that, seems very risky.
The lender for the $70k would probably ask where the remaining balance is coming from. For example, if she's selling to you for $150k, they're going to ask about the other $80k, plus it's going to show on the closing statement (HUD).
We would be making a contract with herthrough an attorney for the remaining balance. All she wants is for us to pay off the balance and then make payments to her until she's paid off. So far it seems like we might be able to transfer the mortgage to us and refinance but if not I'm assuming we would just get a home loan for 70k, pay her balance off and then have two payments, one to her and one to the lender.
As far as the lender is concerned we're buying the property for 70k right?
@Zachary Floyd No, as far as the lender is concerned you're buying the property at the price listed on the Purchase & Sales agreement. You haven't mentioned that price which would be helpful. I threw out $150k as an example.
Note you cannot "transfer the mortgage" to you. The mortgage is in the sellers name and remains that way until paid off.
@Zachary Floyd No, as far as the lender is concerned you're buying the property at the price listed on the Purchase & Sales agreement. You haven't mentioned that price which would be helpful. I threw out $150k as an example.
Note you cannot "transfer the mortgage" to you. The mortgage is in the sellers name and remains that way until paid off.
We would be buying it for 200k. So seller financing on 130k.
@Zachary Floyd if I am understanding your scenario correctly you would treat this as a purchase of a second home or a non-owner occupied property. You would be required to put money into the deal as a down payment. Get a first mortgage of $70,000 with a second mortgage from your friend/relative for the remainder of the purchase price.
For example:
Purchase Price: $150,000
10% down: $ 15,000
1st mtg: $ 70,000
2nd mtg: $ 65,000
The lender will base the ltv off the lesser of the purchase price or appraised value.
If you use private money there may be the option of a gift of equity for the down payment but most institutional and hard money lenders will not use a gift of equity.