Yup the existing lien would be in the name of the original owner…but…if a contract for deed or land contract(again which is a glorified lease option) is setup this is a promise to fulfill the contracted debt/mortgage. Until the agreed upon debt amount is paid, the seller retains title and the buyer receives an “equitable interest” in the property. The buyer does not legally become a title holder until the terms of the contract are satisfied, at which time the seller actually deeds the property to the buyer. All the while the buyer is putting in his time to eventually control the deed and take over the mortgage as lenders see it.
Here is current guidelines directly from a lender regarding land contracts and for all loan types…
“Refinance Transaction: If the land contract or contract for deed was executed more than 12 months
preceding the mortgage application date, the transaction is considered a limited cash out refinance
transaction. Proceeds from the refinance transaction may include the sum of the outstanding balance of
the installment sales contract and the costs incurred for rehabilitation, renovation, or energy improvements. A new appraisal is required and the LTV must be calculated using the appraised value of the new first mortgage transaction.”
If less than 12months they go on to say this would be considered a purchase transaction with the ltv based on the lesser of the appraised value or the acquisition cost indicated in the original land contract.
If the buyer had originally done a “subject to” and placed on title right away(instead of doing a land contract/contract for deed)its legally his property and he can do whatever the flip he wants with it, refi or whatever before the 12 months even though he is not on the original mortgage. Of course for a cashout type refi there’s certain restrictions depending on the lender etc.
If you have a home that you have had an option on and the option time is about to expire but you want to keep the property, is it easier to just get a refinance loan to pay the seller off, rather than getting a traditional loan? I have heard this is the case but I wasn’t sure. Thank you
That is not necessarily true, don’t have to be on the deed, if you had setup a land contract or contract for deed(essentially a glorified lease option) executed 12months ago or longer you can do a rate/term refinance based on current value. If less than 12months it would be a purchase transaction.
Posted by River City on July 02, 2008 at 12:59:16:
Has the seller already deeded the property to you? Your name has to be on title to do a refinance. In addition, generally, the loan to value ratio is less on a cash out refinance than it is on a purchase.
You suggest that somebody that used a lease option to purchase a property can come back at a later point to refinance off the existing lien. Wouldnt the existing lien be in the name of the original owner?
In January Fannie Mae announce a new guideline that specifically prohibits somebody financing a loan when their name is not on the note. I know they added an update to that announcement that gets into examples of different refi scenarios. It can still be done I think but it must be qualified as a purchase.
Were you speaking of other lending options maybe like FHA.
Just curious because this is going to be a common problem for investors who did sub2s and lease options.