Buying with ZERO down

[cparobbins 0]

Most banks require anywhere from 10% to 30% cash down for a non-owner occupied (i.e. investment) purchase. If you have a bank that will offer you terms that you can live with… then stop. Good for you. THIS strategy is not for you. THIS strategy is a tool for investors (or could-be investors) to utilize when traditional financing will NOT work for them for one reason or another and when the seller is willing to accept a discount on the property.

 

This type of deal would be set up as if it were a seller financed transaction. Then, at closing we the ‘seller financed mortgage’ is purchased from a note buyer the funds are wired directly to the title company/ closing agent. The closing agent then pays off any underlying liens, records the documents and pays the seller his amount due. Seller financed mortgages are always bought at a discount (not at par value) so there must be enough in the deal to cover the discount in order for this strategy to make sense to the seller. The note buyer should help to structure the terms to minimize the discount. As a general rule of thumb, the seller will need to be willing to accept around 85-90% for this strategy to work.

 

With this program, we can actually use the appraisal value (rather than the sales price) for LTV (Loan to Value) requirements. What this means is that for some deals, we can set up these investment property purchases with no cash down. For example, if a property appraises for $100,000, the Sales Price is 95,000….. we classify this as a 95%LTV loan with no cash down. Most banks use the LOWER of the appraised value or sales price. As long as we have a 95%LTV using this method, we can work this deal. With decent credit of 624 middle score or higher (we can do lower scores, but the discount on the note will be higher) we try to pay around 90% or more of the mortgage balance. The seller would receive that amount in addition to the down payment (if ANY) of the buyer.

 

If the seller is willing to accept this type of discount (85-90%), a buyer could potentially purchase these types of residential investment properties will little or nothing down in cash. It’s a great tool to have. I hope this gets the creative juices flowing!

 

Warmly,

 

Michele Robbins, CPA

Note Funding Resources, LLC

Office (410) 827-5788

http://www.notefunding.com

info@notefunding.com

[-Tony- 0]

cparobbins,

 

I do think this would work well for investors on the sell side as well ex. (this is for everone else not you, I know you understand what I mean)

 

you are selling a house for 100k you bought it for 65k. You seller finance 20% (hold a second for 20k) and the buyer gets a mtg for 80k or 80%

 

now you sell your 2nd @ 85% for 17k. your only out 3k but you got the house sold. ---or---You keep the second for residual income

[cparobbins 0]

Tony,

 

In theory, what you said is a great idea!

 

Unfortunately, 2nd position seller financed notes are extremely undesirable.... especially without years of payment history.

 

Most investors would only pay about 50% of the balance of a 2nd position seller financed note unless it had years of payment history, decent borrower credit, and favorable CLTV (Combined Loan To Value) position.

 

It is because of this that my posting geared around creating a first position lien at 95% of the appraised value.

 

Thanks!

 

Michele Robbins, CPA

Note Funding Resources, LLC

http://www.notefunding.com

[-Tony- 0]

When I first read your post it sure did look like an add...heck, I'll be honest it still does.

 

But you have peaked my interest I have some questions after rereading your post.

1. What interest rates are these Mtg. set at

2. When done this way does it show up on your credit report ( I bought a few

houses conventionally this year and man your credit score can take a hit)

3. Would this work for rehabs where you pull cash out at close as long as the

numbers worked

4. are there pre-pay penalties

5. Is there a min purchase price

 

I could probably come up with a few more but hey its 3am here...

[-Tony- 0]

cparobbins,

Any answers to the above Q's?

[-Tony- 0]

I emailed Michele directly and recieved this reply. If you have ever financed a MTG you can see the value in this. I am waiting for a reply about closing cost and escrow of TI. oh yeah in the email I changed #3.

 

Tony,

Sorry for the delay. Last week was very hectic.

 

In a message dated 10/19/2004 8:52:18 PM Eastern Standard Time, tonygove@yahoo.com writes:

 

 

 

You wrote this on a message board, and I had a couple of Questions.

 

1. What interest rates are these Mtg. set at and who sets it

 

 

The buyer and seller agree upon an interest rate that will work. The amount of the discount on the note is a huge factor of this however, so the seller will want to structure the note to MINIMIZE the discount. Between 8 and 9% is usually good and will not adversly affect the amount an investor will pay for the mortgage.

 

 

 

2. When done this way does it show up on your credit report ( I bought a few houses conventionally this year and man your credit score can take a hit)

 

 

It does not usually show up on your credit report. However, if I end up selling this mortgage eventually to an institution that DOES report to the credit bureaus, then it would show up at that time.

 

 

3.  How fast can closing take place (i.e. I am working with some people in the foreclosure process)?

 

 

 

We can close 2-3 days after receiving a complete file. Of course a 'complete file' includes appraisal, title work and proof of insurance - all of which are obtained from 3rd parties. So.... however long those people take to get you your documents would determine how long until you close.

 

 

4. are there pre-pay penalties

 

 

Never.

 

 

 

5. Is there a min purchase price

 

 

The minimum LOAN amount we would purchase would be $30,000 face value.

 

Hope that helps you.

 

 

 

 

Most banks require anywhere from 10% to 30% cash down for a non-owner occupied (i.e. investment) purchase. If you have a bank that will offer you terms that you can live with… then stop. Good for you. THIS strategy is not for you. THIS strategy is a tool for investors (or could-be investors) to utilize when traditional financing will NOT work for them for one reason or another and when the seller is willing to accept a discount on the property.

 

This type of deal would be set up as if it were a seller financed transaction. Then, at closing we the ‘seller financed mortgage’ is purchased from a note buyer the funds are wired directly to the title company/ closing agent. The closing agent then pays off any underlying liens, records the documents and pays the seller his amount due. Seller financed mortgages are always bought at a discount (not at par value) so there must be enough in the deal to cover the discount in order for this strategy to make sense to the seller. The note buyer should help to structure the terms to minimize the discount. As a general rule of thumb, the seller will need to be willing to accept around 85-90% for this strategy to work.

 

 

 

Michele Robbins, CPA

Note Funding Resources, LLC

Office (410) 827-5788

Fax (443) 782-0775

http://www.notefunding.com

174 Edenderry Avenue

Centreville, MD 21617