Is this a good deal? - Posted by IB (NJ)

Posted by JohnB_N on December 03, 2000 at 20:57:57:


Is this a good deal? - Posted by IB (NJ)

Posted by IB (NJ) on December 02, 2000 at 18:43:14:

Okay here’s my currect situation:

I purchased a 2fam REO for $47k back in August and rehabbed for about $15k. For the last 6 weeks, we had a buyer under contract for it for $95k.

Well he fell through so I’ve decided to purchase it myself from my LLC for the retail price, thus allowing my partners and I to cash out and move on to other deals. I’m then going to rent it out which should bring in at least $400 Pos. cash flow.

A fellow investor referred me to a mortgage banker that deals with companies that don’t have seasoning requirements. The only thing is these guys charge a higher interest rate than the “typical” mortgage companies. On this one for a 95%LTV, they’re charging me 9.75% plus two points on a 30 year fixed. He also said I would have to pay maybe 1/2% to avoid a prepayment penalty. My plan was to season the mortgage for about a year and then refinance for a much better deal. My credit score came in at an average (between the 3 cerdit bureaus) of 634.

My question is (1) does this seem like a good deal? (2)since these guys are mortgage bankers, would I get a better deal if I went straight to a mortgage company that didn’t have a seasoning requirement? (he says that there are only 2-3 companies out there that don’t). (3) Would you guys take another route in solving the problem that was created when my buyer backed out? and (4) is there normally a prepayment penalty to pay when refinancing a seasoned mortgage?

Thanks once again for your ears and input.

Re: Is this a good deal? - Posted by JPiper

Posted by JPiper on December 03, 2000 at 07:53:31:

I don’t find anything particularly unusual about your quote. An extra bump in the rate to avoid the prepayment penalty wouldn’t be particularly out of line either…although I wouldn’t know anything about whether prepayment penalties are illegal in NJ. Prepayment penalties are normal on subprime loans in my area.

However, it also sounds like this 95% loan might be an owner-occupant type loan. Be careful if it is, and if you’re not going to be living in the property.

Further, I’d be surprised if your loan actually goes down in the way that you contemplate. You evidently are a member of the LLC, so in effect you are selling to yourself at retail price to cash out your deal and presumably put money in your pocket. My guess is that the lender will have a problem with this, or that you will have to create some sort of subterfuge so that the lender is not aware of this factor.

I would be highly surprised if there is a lender who would knowingly make a 95% loan on full appraised value on an unseasoned deal being “sold” in what is not an arms length transaction.


Re: Is this a good deal? - Posted by dewCO

Posted by dewCO on December 02, 2000 at 22:51:49:

You have a low laon amount. Lenders don’t like makig less than $1000-$1,500 on their lona origination fees. If this comes out to about that then you’re in the ball park. They also love piled on some if they feel you no other recourse. Start negotiating–make up a story if necessary, (found another companyetc.), or sounds stiff maybe you’ll just sell, etc. and see if you can get a better deal if you want to.

Re: Is this a good deal? - Posted by Tom

Posted by Tom on December 02, 2000 at 19:11:41:

The interest rate doesn’t seen to far out for a 95% LTV with a 634 credit score, but 2 points and a prepayment penalty seem out of line to me. I would shop it around before I signed anything.

Re: Is this a good deal? - Posted by IB (NJ)

Posted by IB (NJ) on December 02, 2000 at 20:59:36:

Hi Tom:

Do you think the 2 points are out of line even though the title hasn’t been seasoned?

Re: Is this a good deal? - Posted by Ben (NJ)

Posted by Ben (NJ) on December 02, 2000 at 19:44:24:

IB, the prepayment penalty does not sound kosher at all. In fact it is illegal to charge when loaning against single family homes in NJ. I don’t know about two families but I can’t imagine it would be allowed when it is still residential property. i would look into this further but the rest of it is not that bad.

Re: Is this a good deal? - Posted by JohnB_Nj

Posted by JohnB_Nj on December 02, 2000 at 23:47:37:


I didn’t know that a prepay was illegal on a SFH in NJ. Is this in “black and white” anywhere? I have a loan with a prepay on it and I would like to find out more about this. Would you be so kind as to direct me to where I could find additional information.



John Bittel

Happy Holidays!!

Re: Is this a good deal? - Posted by IB (NJ)

Posted by IB (NJ) on December 02, 2000 at 20:57:05:

Ben, So even the points are not out of line considering the title hasn’t been seasoned? Or is it better to pay a higher interest rate instead of the points and refinance after a year? Could you explain the illegality issue with the prepayment penalty a little further? I want to do more reasearch on this. Thanks.

NJSA 46:10B-2 and 10B-5 - Posted by Ben (NJ)

Posted by Ben (NJ) on December 03, 2000 at 09:03:11:

46 10b-2 titled Prepayment of mortgage loan without penalty

“Prepayment of a mortgage loan may be made by or on behalf of a mortgagor at any time without penalty.”

46 10b-5 entitled Violation; Return of fees plus interest.

" Any holder of a mortgage loan or agent acting on behalf of the holder of a mortgage loan who shall knowingly demand and receive prepayment fees, except as provided in this act, shall be liable to the mortgagor for the return of the whole amount of the prepayment fees so received, plus interest thereon from the date of such receipt at the rate of 6% per annum."

One caveat- During our discussion of this law in my mortgage banking licensing class, I recall the attorney
conducting the lecture saying there were certain limited exceptions for commercial loans. He did not mention any exceptions for residential loans but I will keep digging around, this is what I found off the the top of my head.

Re: Is this a good deal? - Posted by Ben (NJ)

Posted by Ben (NJ) on December 03, 2000 at 09:42:47:

IB, see my response to JohnB. If you plan to refi within a short time, it makes sense to pay a higher interest rate and less points. More on this later, my wife is pis*ed because we are going to NYC and I started pulling out statutes…owww!. Bye!