Will a bank refinance a home you bought with a wrap?

Question

Hey BP,

This is something I want to know in order to reassure some of my buyers...

So, I want to buy/acquire homes subject-to. I then want to find a buyer (one who can't get conventional financing/loans) and sell the property to them with a wrap mortgage. (These are all techniques I heard from podcast #70 btw).

I'm wondering now, will a bank give my buyer a conventional loan on that property later on when the buyer's credit improves? This mortgage would of coarse be used to pay off the original loan that I would take over subject-to.

I'm wondering, because I want to make sure I can assure my buyers that they will be able to refinance the home later on from a bank, hence making this a smart purchasing option for someone not able to currently acquire a loan.

Thanks BP!

Albert Bui · Answer

Yes you can get a "rate & term," refinance on a wrap assuming your income, credit, and assets meet requirements to qualify. It also depends on your definition of a wrap, if by wrap, you took legal title and agreed to be obligated to a pay a note that covers the prior sellers note then yes.

The underwriter with conventional financing will need to look at the purchase contract, final HUD settlement statement, and to verify that you've made on time payments so far on this wrap loan to ensure there is a good payment history prior to the submission of the rate/term refinance.

If you took legal title and were obligated on the debt you should be able to refinance out.

Fidencio Tamayo · Answer

Hi, all:

Sorry for resuscitating an ancient thread. I've got a scenario question I was looking for help answering...

Say I took over a mortgage subject-to and seller agreed to a 2nd position note with a 5-year balloon for the remainder. I then sold the property on a wrap with a 30-year term. Would I be able to refinance (not to pull money out, just to settle the balloon) the underlying wrapped 1st and 2nd even after having sold the property?

Or, is this all ludicrous? Haha!

Thanks in advance!

John Church · Answer

my experience is that if they qualify for a loan it has nothing to do with which house they buy. so get them to go loan shopping and see what amount they are good for and then take it from there. I dont think you need to ask your bank to refi, that term doesnt apply for deed transfers. nowadays the banks have to qualify you so meticulously  and them already living there doesnt matter at all. Maybe it could be used as a reference that they perform well with payments, they get approved for a certain amount and it just so happens they live in the house they choose to buy or maybe they want to shop around and move out on you since they now qualify for any house they want. the local brick and mortar bank people no longer make any decisions that i know of, someone in an office elsewhere does. if you figure out how to make other people qualify lemmee know and we can make millions. haha

Wayne Brooks · Answer

It's their income and credit that will determine if they can refinance.  It won't matter if it's an underlying wrap from you.

Then again, there's that small chance of that pesky DOS clause, which will put you in deep doo doo with the title in the end buyer's name, if they can't refi at that time.  Also, you've got the issue of having to foreclose if the buyer stops paying, verses eviction if you had a lease option.  Foreclosing on a wrap, you'd have to carry the monthly payments, taxes and insurance for the 6-18 months of foreclosure.

Will a bank refinance a home you bought with a wrap?

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