seller held 2nds w/a (FNMA) 1st-can I do those?? - Posted by Paul (FL)

Posted by Carol on December 13, 1998 at 08:25:05:

the the prepayment penalty is, as Pat mentioned, for
refinancing, not in case of sale… Just mentioning that because this verbage appeared in a loan we closed on last week, and I did a double take … checking to make sure that it did not apply to the SALE of the property.

The prepayment in our case would have triggered a hefty penalty.

seller held 2nds w/a (FNMA) 1st-can I do those?? - Posted by Paul (FL)

Posted by Paul (FL) on December 12, 1998 at 20:52:09:

I am trying to structure a deal where the borrower I want to sell to obtains a conventional 1st mortgage for 70% LTV, puts down 5% and I take back a 2nd mortgage for the remaining 25%. I would want a 2-3 year term on the 2nd with a ballon to cash me out when they refi. I was told that a conventional 1st won’t allow for secondary financing with a term of less than 5 years, is this true?

Re: seller held 2nds… - Posted by Paul Macdonald

Posted by Paul Macdonald on December 13, 1998 at 19:57:22:

You are correct. Standard underwriting guidelines say 5 yrs or more if they are to allow the 2nd (assuming a shorter amort. won’t payoff the note while staying within DTI ratios).

A possible way around the buyer not bothering to refi. soon enough is:

If the DTI’s work at a higher interest rate charge that rate. And in writing, and shown to the lender, you offer the buyer an incentive to refi. early. Say for instance its a 5 yr. amort. and balloon at 21% interest, but if you pay it off within 3yrs Mr/Ms. Buyer, I will discount the 2nd by calculating from the gitgo the note at 11% (or whatever). If the DTI’s work the lender should have no problem with it and your buyer will bust a gut to pay you off early… and of course I don’t have go into details about the benefits if the buyer blows it…

I’ve only seen it done twice but both times it worked like a charm.

Good luck.

Re: 2nd mortgage - Posted by Erin

Posted by Erin on December 13, 1998 at 18:26:27:

Yes, I believe it is true. The balloon cannot be due in less than 5 years. However, the borrowers can refinance at any time after 1 year. But because balloon cannot be due before 5 years, you are not guaranteed they will refinance in 2 or 3 years by going this route.

There are other programs out there that may allow a shorter balloon. However, FNMA is NOT one of them.

Maybe - Posted by pboone

Posted by pboone on December 12, 1998 at 21:32:09:

We have recently run across “no junior leins” clauses in apartment financing, but for the single family home purchases we have yet to see them. What the lender may be placing in the note is a 5 year prepay clause which means if the property is refinanced within 5 years there is a financial ( usually 6 mos interest ) penanlty . In most cases those can be “bought down” by offering to the lender more money up front in the form of points.