Posted by JoeKaiser on March 30, 2002 at 18:41:12:
zero interest . . . so much easier to calc.
You’ve got other issue there, buddy. I still can’t figure out your post. Email me if you need someone to take a look.
Joe
First and second mortgage taken out by the seller? - Posted by Michael
Posted by Michael on March 30, 2002 at 02:13:22:
When I get the seller to obtain a new first mortgage to pay off the existing mortgage and give the seller the required downpayment he is looking for. Then give the seller a second mortgage for the balance of the property which will be his total asking price.
Question - A new first mortgage of ($27,000) taken out by the seller is from the bank to pay off the existing mortage of $12,000 and give the seller a cash downpayment of $15,000. Who takes out the second mortgage and from where? Since the bank will only lend up to 75% to 80% of the value of the property ($50,000) how is the second mortgage handled? This example is taken from Chapter 11, page 11-5 from the Carleton Sheets course (Green edition)
First and second mortgage taken out by the seller? - Posted by KAPEC
Posted by KAPEC on April 10, 2002 at 22:27:46:
I too was confused when this example came up in the CS program. After both my associate and I reviewed this repeatedly - we STILL do not understand Carleton’s example. If you have any luck - let us know!
RE: 1st & 2nd held by seller - Posted by JV
Posted by JV on March 30, 2002 at 08:41:34:
Hello Michael,
I ran across your scenario and I want to make sure I completely understand the scenario:
The property owner estimates the value of the home at $50,000 and they are getting a cash out refinance totaling $27,000 in order to net $15,000 as a downpayment on another home.
What are you attempting to do? A no money down contract for deed?
Also, How do you plan to get aroung two important aspects:
- The institution that gave the $27,000 first mortgage will certainly have a “due on sale clause” along with an “accelleration clause” in their deed that prevents wrap around mortgages or contracts for deed.
- If the seller is going to need financing for his new home, they will have to qualify with the additional debt of their current home. Hopefully, they will qualify with the addtional debt of 2 mortgages.
The way I read this is that seller takes out a first mortgage, you agree to make the payment plus the seller holds a second mortgage for the remainder of the purchase price, which you also agree to make.
This also raises the question of credit reporting responsibility. If you are late on the payments of the first, the sellers credit report would suffer since there is no “release of liability” on the first mortgage.
If you could clarify this, I would appreciate it.
JV
Re: RE: 1st & 2nd held by seller - Posted by Michael
Posted by Michael on March 30, 2002 at 13:24:04:
JV, The seller is willing to carry the balance of $23,000 on a $50,000 home. There is an existing mortgage of $12,000 and he is also looking for $15,000 down. I would obtain a new first mortgage of $27,000 which can pay off the existing $12,000 and give the seller his $15,000. Then I will give the seller a $23,000 second mortgage which will give him $50,000 asking price. After the first mortgage is taken out the property will be transferred to me.
I made a mistake when I said about getting the new first mortgage taken out by the seller. It is actually me, the buyer who will take out the first mortgage on the property.
It (the property) will be transfered once this takes place.
The second mortgage for $23,000 is issued from me to the seller. (I guess since the seller is willing to help with the financing I could even offer a balloon payment in 6 years at a rate of 3% per year noncompound.) The money received from my tenants would automatically go to a third party ie. a lawyer, or broker for distribution to ensure that the seller receives his payment and that the new first is being payed. (if the seller accepts a balloon at a rate of 3% a year then I would only owe him $150 a month with the remainder of $12,200 payable in 6 years)
After the 6 years is up I would refinance the property and pay off the balloon. After 6 years of paying on the first, the property could easily handle a refinance loan of 75%
NOTES: I was a little confused at first about whom would take out the first mortgage but now I know that it will have to be me. I have good credit and the loan is for only about 51% of the property.
I guess an easier way to do this is to use my line of credit, of $10,000 to put down on the property with my new first mortgage. The seller wants $15,000 plus the remaining $12,000 payed off. I could get a loan for $37,000 to pay the existing loan of $12,000 give the seller his $15,000 and use the remaining $10,000 to pay off my line of credit. The $37,000 is about 75% of the value of the property. Agree to a balloon in 6 years (although I’ll try for 8 years) to the seller.
RE: 1st & 2nd held by seller (Opps!) - Posted by Michael
Posted by Michael on March 30, 2002 at 14:24:09:
My math is a little rusty (Opps!) From the previous example. If I pay 3% per year for 6 years non-compound on $23,000 this will be a total of $27,140 I will then pay $150 per month times 12 months times 6 years which is a total of $10,800 Minus $27,140 which would leave a total of $16,340 left to pay on the 6th year.