Board Topic: Trying to find ways to finance
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Trying to find ways to finance

Posted by: Rayf Apr 30 2004, 02:57 PM
HI I am wanting to buy a muilty unit home sellings at 150,000 my problem is a limited down payment of around 5000- 8000 . There Is a possibilty of the owner holding a second mortgage . my ? is what does that mean, how does it help me and what kind of things should I watch out for when doing something like this like any side costs for me .

Thank you in advance
Ray F

Posted by: loanuniverse Apr 30 2004, 06:35 PM
Ray:

The way that an owner financed second mortgage works is as follows:

You find the property that you like and you run the numbers to see if it will cash flow. First thing that I want you to do is go to http://www.loanuniverse.com/sensitivity.html and read the article that I posted about sensitivity analysis. It is not a perfect fit for your situation, but there is a link to a spreadsheet there that will help you calculate cash flow and will help you find out if the property makes enough to service both loans.

Lets say for argument sake that the numbers look good. You now have a problem. You got essentially no money {those $5,000 to $8,000 will be cut in half if not worse by the closing costs and fees} and you want to buy a property that most lenders will only lend 80% or $120,000. You are missing $30,000 to make this happens.

The seller still wants to sell so he is willing to lend you $30,000, but to make sure that he has some collateral he will put a mortgage on the property. However this mortgage will be in a junior position to the bank that lends you the $120,000. The risk of the seller is much higher than the bank, and that is the reason why 2nd mortgage’s interest rates are usually higher than 1st mortgages.

You also have to take into consideration that 2nd mortgage lenders are usually left holding the bag as the foreclosure initiated by the first mortgage lender will eventually wipe their position.

The lender willing to finance you is a good thing, but do not let that blind you from getting a good deal. There is always the risk that the financing is there because the seller has not found anyone to buy at the selling price. Did I say that you need to run your own numbers? If not let me say it again…. “You need to run your own numbers”.

Good luck.

Posted by: don Apr 30 2004, 09:31 PM
RayF,
It is possible to buy investment property with little or no money down.
If your mid FICO score is 720 a 100% loan and with a 680 score a 95% loan i can be done. Other factors are the comparables. The property must be 1-4 units. If I can be of help call me. I am a national lender that can lend in all fifty states, Hawaii, and Puerto Rico.
Don Lepley
RBC Mortgage
email

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