“This prompts another question: How are these gifting programs legal? If banks want the buyers to have their cash tied up on the property so they can’t walk, how are these gift programs allowed to work?”
Look at it this way. When the buyer gets the gift, it IS his money. Therefore he has HIS money in the deal. It’s the same when a parent gifts a child $10K for downpayment by signing a gift letter. Happens every day. It just has to be a true gift, with no expectation of payback.
I am selling my first deal and want some experienced insight.
I am having a difficult time finding buyers with decent credit and money for down payment. They all want to get “creative” in a way that I am not comfortable with.
In trying to come up with a solution to this problem, I ran across a one-liner in Bronchick’s Alternate Real Estate Finance course. It states you can write a note for the buyer at 0% interest due in 20 years.
Can my buyer and I agree to do this legally? Does the bank care about the terms of my loan?
Re: Getting my buyer to qualify - Is this legal? - Posted by Peter_MD
Posted by Peter_MD on November 06, 2002 at 10:20:12:
JCR:
The note will be called a “silent second” if the bank is not aware that it exists. That is not legal, guaranteed. The bank would wind up lending money based on loan fraud and everyone connected would have legal issues.
Suggest you consider the post about assistance programs. There are many that allow buyers to qualify with “less than perfect credit” and there are also programs that assist first time homebuyers.
Recommend you call the nearest local HUD office and discuss their programs with the top (least worse) applicant you have.
You may also want to call a mortgage broker and see what they can come up with. They’re really limited in being creative, however, a lease/purchase with someone that has decent credit may work in less than a year.
Lastly, this has worked for me in the past whenever I find someone I really want to have the house and they really need to live there, and there is enough money spread to pull this off. It is a spin on the creative side, however, you as the investor/seller will take on some of the risk and responsibility of the lender. You have the mortgage loan officer take an application for your prospective buyer (the best candidate you can find). After the normal processing, the loan officer comes back and says that there is a lender that will approve the loan for a certain amount, certain interest rate, and certain period of time. The buyers can later refinance when things go smoothly and the payments are made on time every time. To finish this senario, you help the buyer along and nurture them for a period of 6 to 12 months and you definitely can afford this because of the substantial gain you are expecting. You establish a contingency fund account for the property and put some of the profits into that account to ensure the payments can be covered. My biggest criteria for doing something like this creative way, is to ensure the buyers have good jobs and steady income. Pick the best applicant and help them…you are assuming the risk rather than the mortgage company. And remember, if they don’t work out, get them out and get someone else in.
JCR, please look at these grant programs. They’re legit, and you just increase the sales price to compensate. Or, you can take a small second with alphaassistance if the buyers can’t qualify for the entire amount. It’s a better way to do what you’re trying to do.
Re: Getting my buyer to qualify - Is this legal? - Posted by Kristine-CA
Posted by Kristine-CA on November 05, 2002 at 09:57:57:
JCR: what kind of deal are you trying to sell? Is it a wholesale flip or a rehab that you’ve finished?
Consider posting some more details and the brainstorming will be better directed towards your specific deal. What price range are we talking about, what’s your bottom line. Why do you think your buyers are running into trouble? What kind of buyers are they? Owner/occupants or beginning investors?
Just some thoughts to get the ideas flowing…Sincerely, Kristine
Re: Getting my buyer to qualify - Is this legal? - Posted by michaela-ATL
Posted by michaela-ATL on November 05, 2002 at 08:09:19:
jcr,
sure you can create a note, but what you read in bronchick’s course is written for the buyer. as a buyer you want the interest to be as low as possible. if you’re the seller you want the interest to be as high as possible.
the bank does care about the note.
let’s say the buyer has 10% in cash - not the bank/mortgage company is trying to get a 90% loan for them.
you are willing to create a note for 15% of sales price at 10% interest. the buyer has 10% cash. now the bank only has to do a mortgage for 75% of the sales price. it’s a lower risk for the bank, so the terms are better and there’s a better chance, that your buyer can get financing, even if their credit isn’t up to par.
In my question about owner financing the 2nd would not have been silent. To state my question a little more clearly - Can I take back the required down payment as an owner financed note? To take it a step further, Can that note be at perhaps 0% interest due upon the buyer selling that home? Or due in 30 years? Whatever – My buyer has no money and I was not planning on ever getting it.
From the feedback I have received so far, it sounds like this is a definite “NO”. The bank wants to make sure the buyer has skin in the game.
I have looked into the gifting programs and this is a definite fit for this situation. AlphaAssistance.com seems to have the best programs as there are no geographic limitations, offers most amount of money (up to $15k) and is the most inexpensive service ($750). If anyone knows of a better program, please post…
This prompts another question: How are these gifting programs legal? If banks want the buyers to have their cash tied up on the property so they can’t walk, how are these gift programs allowed to work?
I appreciate everyone’s feedback. CREOnline is truly a great resource.
Recent comps in the area are between $90 and $102k and this property appraised for $98k. I want to walk away with at least $83k.
Based on my experience with the buyers in the area, I feel that I could not get much more than that. I have run a credit check on 8 or 9 different buyers they all have bad or no credit and no money to put down. The buyers will be owner/occupants.
Thanks and please let me know if I left anything out,
There are some lenders that will loan without seasoning, but most require you to have owned the property (on title) 6 months to 12 months before you sell. Yes it’s nationwide. There’s no way to try to fool a lender regarding this issue, without dealing in fraud.
If a lender requires seasoning that you don’t have, either sell on a L/O or wrap for a few months or a year, and then get your buyer refinanced, or keep searching to find a lender that doesn’t require seasoning.