All Forum Posts by: Patrick Roberts

Oh boy. Based on the math and what's in the picture, this looks like a partially amortizing loan. On 6/1/2035, there will be a balloon payment of $103,863 using the figures in the addendum to calculate. If this loan was to fully amortize given a starting balance of $165k, note rate of 3.0%, and monthly P&I payments of $850.00, then it would take approx 22 years to pay off. This addendum shows that the loan terms out in 2035, long before 22 years. 

I would get a copy of the note and the deed of trust to get the exact figures and agreement. This is just the addendum; the note will detail the actual terms of the loan.

For traditional loan options, you generally cannot borrower any part of the cash to close (downpayment and closing costs). All of this money will be sourced unless seasoned, so the only way around this would be to A) get a personal, unsecured loan from your grandma several months in advance, and B) lie about this fact on your application (you will be asked about any undisclosed debts). Mortgage fraud is a terrible idea, so dont do this. 

Secondly, if your grandma intends to secure her loan against the property with a mortgage/DOT, then this will be a consumer loan since you will occupy it. Dodd-Frank/consumer finance laws at the state and federal level will apply, and since your grandma is an outside party to this transaction, she will most likely need to be licensed as a mortgage lender to lend in the way you described.

Most importantly, though, you need to weigh the potential negative outcomes of this situation. Is your grandma independently wealthy where she can absorb the loss of this money without any major impact, or is this her life savings that you'll be risking? In other words, if this blows up and you lose her money, what would the outcome be? If she cant afford the loss, then this is a horrible idea and should be abandoned. It's one thing to gamble with your own assets, but entirely another to gamble with someone else's money just because they trust you when it could have life-altering consequences for them.

If she's going to lend to you, I would recommend that she be in first position only with a healthy margin of safety (equity cushion) and then seller-finance whatever property to you. This means you'll have to go out and find a crazy good deal for her to buy on your behalf and will likely need to invest your own cash as the downpayment, although I dont know how far $20k will really go these days.

Another option would be for her to buy the property herself with a mortgage and then rent to you with a purchase option for when you can eventually qualify for your own loan. This will also increase her risk, though, as half of the reason that lenders require a downpayment is that this equity soaks up the first losses before the lender takes a hit.

You're on the right track, but the reality is that you might need to wait longer until you're able to qualify. Both Conventional and FHA programs exist to help people in your shoes get started, and the requirements really arent steep - 2 years of job history to prove income stability, 3-3.5% down, and good credit. There are also nonQM programs that allow you to use the type of work history you currently have, but they typically require 10-20% down at a minimum. Since you have a some cash and know how to hustle, some of the other pathways into REI may be a better starting point (like wholesaling).

Not much margin if things dont work out. If the loan is accelerated or the HOA decides not to allow MTRs and you have to sell, you might take a haircut on the exit since your basis is 93-95% of the ARV. Also, is this a Conventional loan or a govt loan (FHA/VA)?

Last piece, I'm assuming this is a homeowner and not a for-profit owner. If so, you might be taking on a lot of legal risk. SC is actively hunting wholesalers who are skirting the new wholesaling law in order to make an example out of them. In this case, you may be involved a violation of this law by paying a wholesaler. I'd dig into this aspect if I was in your shoes to see where you fall with respect to this. If this homeowner files a complaint after the fact when they go to buy a home later and finds the original mortgage still exists, you could have serious problems. 

I mean, the day you close on the property is that day that you can move in.

Are you referring to converting a Fannie/Freddie financed property into a rental? If so, then it's at least one year unless an exception applies. Exceptions are things like unexpectedly having to move out of the area for a new job, major illness that requires you to move in with a family member/friend, etc.

I dont think a lack of guarantors will be the issue as nonrecourse debt exists at 50% LTV on good properties. The immediate roadblock I see here is verifying who is able to authorize the entity (the DAO) to borrow and to put the property up as collateral. For instance, with an LLC or other entity borrower, the lender will typically get a copy of the operating agreement or a corporate resolution/memo showing that X individual is authorized to take on debt on the entity's behalf and to put the entity's property up as collateral. Going one step further, if this loan goes into foreclosure, serving the involved parties and other legal process is going to be a nightmare. If any of the stuff I just mentioned is challenged by the defendant, the legal process would likely grind to halt while experts are consulted, research is performed, an legal fees are racked up.

With a entity that by it's nature has decentralized ownership, I dont know how a lender would A) identity with reasonable certainty where authority to dispose of assets and to borrow lies within the organization, or B) how they would convince a court of this authority to pursue foreclosure relative to notification and service of process on the defendants. 

In my opinion, unless a sophisticated lender really knows their way around the crypto world well enough to feel confident in the ability to foreclosure quickly and easily, the juice aint worth the squeeze. 

With househacks, the general rule of thumb is that you have to live in the property for at least one year as your primary residence. There are some exceptions to this, but none that are likely to work repeatedly because any UW with half a brain is going to see that you have rental properties and just bought a primary within the past year. 

Even if you stay in the home for a year, you may have a hard time buying a new primary with some lenders as this is generally being cracked down on right now. For instance, if you own a SFR and are wanting to buy a new SFR a mile away as a new primary without any other justification (bigger, nicer, better quality neighborhood, etc), expect pushback. Additionally, FHA has the 100-mile rule which is meant to deter this exact strategy.

DTI will likely become a roadblock by your 3rd or 4th property, also. DSCRs can help remedy the income part but not downpayment.

Hey Evan,

I live in Charleston, and my office is out of Columbia. I'm fairly active in both markets. Happy to connect!

Do you plan to hold the bond for deed, or sell it?

Lawyer time. If this is in fact a VA loan, the performance on it will affect your CoE so long as that loan is tied to your CoE. This could have an impact on your ability to get another VA loan in the future. This is also going to destroy your credit. I would not waste time on this - take action immediately.

Might not hurt to call the servicer and see if some kind of forbearance program is available to pause payments until the divorce is resolved so that the mortgage lates dont wreck your credit. 

My guess is that Title is preparing the DOT for the lender and needs the terms from the note. Could also be that they need the terms for the title commitment.

As far as required documents goes, this will vary by lender and the level of sophistication. At a bare minimum, there should be a note, deed of trust, hazard insurance policy with mortgagee clause either paid at closing or verified as paid up and in good standing, lender's title policy. 

Most lender's who know what theyre doing are going to require at least the following (just off the top of my head):

- tax certification from Title and/or payment of taxes at closing

- copy of valid identification and affidavit of any AKAs

- affidavit of non-owner occupancy/business purpose use

- borrower auth and certifications to release and verify

- pledge/collateralization of leases/rents

- copy of Title/attorney E&O insurance

- if an entity holds title/is the borrower, then: personal guarantee, articles of org/incorp, certificate of existence/good standing, operating agreement, corporate resolution to authorize borrowing if there is more than one member, possibly a UCC1