FHA LOAN Incorporated "WRAP MORTGAGE"
After leaving a real estate workshop "No Money, No Bank, No Credit" They mentioned this idea called Wrap around.
If people do not know , this is basically you as the seller, giving the buyer the ownership of the house an option to purchase an asset , if they cannot qualify for a conventional loan. (Due to low credit, high interest rates or down payments) This is similar to "sub to" contracts where buyer has ownership and seller has promissory note.
Now in this situation, you are acting similar to a bank. So I've thought of a scenario and When I had asked this question, They said it was possible. Can you apply for an FHA loan, and then use creative financing for Wrap around mortgage? I asked if the "owner occupancy" applies and it was stated otherwise. So this bottled my mind, and why not consider this technique? You can use this to get extra cash, and also maybe a little extra cash flow.
Example: Me: Apply for an FHA Loan and get approved at 3.5% down and 3.5% interest.
Property: 200,000
Down Payment: 7,500
Interest: 7,500
30 Year Mortgage.
Mortgage: 575/Monthly
(Not including insurance or HOA)
Lets just say you want to use this "Wrap Mortgage" technique
You find a buyer that is willing to purchase this property for 230,000 and you require a downpayment at 10% and interest at 7%. Good deal right since the buyer would be motivated for this deal because most conventional lenders require 20% and higher interest rates. Win Win situation?
Buyer:
Property: 230,000
Down Payment: 23,000
Interest: 17,250
30 Year Mortgage
Mortgage: 686
(Not including insurance or HOA)
SPREAD:
Income from sale: 23,000-7,500= 12,500
Interest: 17,250-7500=9750
Mortgage: 111 Cash Flow
The only reason why I don't this working is if the bank submits note due, which then you can convince buyer to refinance.
Have I wasted thought on this or can this actually work, am I getting way ahead of myself?? Considering FHA loans are for owner occupancy.