Note, this is a continuation of No Deposit Home Loan Part 1 so, if you have not read that yet please do so first.
So, how do you buy a property with nothing down, going with a conventional mortgage? Through a program that provides private contributions out of the seller’s equity. Here is an example. Suppose you find a home that is listed at $200,000, but it has been sitting for awhile. The seller is getting anxious to move it either because they have bought another house and can’t make two mortgage payments, or they are a landlord that just wants to get rid of the property. Other motivated sellers can include a person looking to buy a different home but can’t until this one goes to settlement, or a couple in the middle of a divorce. Since I am assuming that you are somewhat knowledgeable on real estate, I will assume that you understand what a motivated seller is.
What you need is a seller who will be willing to offer you the property at a discount, of anywhere from 10% to 20% of the appraised value. Remember, if the property is appraised at $200,000 but it is not moving, is it really worth $200,000? Not to the seller. The seller can’t spend equity, and he or she still has to make payments on the home. We can, however, convert it to cash that you can use to get the property. That is what we will focus on here.
Let’s assume that you have been approved for a mortgage worth 90% of the purchase price of the home. You still need 10% down plus closing costs. The seller is willing to take a 15% discount from the appraised value. Assuming that this is the $200,000 home, you need to come to settlement with $20,000 plus closing costs. Most lenders let a seller pay closing costs up to 6% of the purchase price. This is all done at settlement. In this example, we will assume that seller’s assist, as this program is called, will cover the closing costs. You are still stuck for the $20,000 down payment. You have to have that cash sitting in your bank account before settlement and show your lender that the money is there. How do you do that with the seller’s equity?
Once you have watched the presentation, you will see that we can convert that extra 10% of the value of the home to cash that can be deposited into your checking account. Your mortgage broker will work with me to get this done, as I am an account rep for the program. The main requirement is that the broker has what are known as sub-prime lenders who do not require sourcing or seasoning of the funds used for settlement. This means that they do not ask where the money came from that was used for settlement, and they do require that the money has been the account for any length of time. All they will require is what is known as a Verification of Deposit, or VOD. What I will do is to assist your mortgage broker to get the VOD done and then get the money wired out of your bank account and to the escrow or title company. At settlement, that money is used just as if it were your own money and paid to the seller along with the proceeds from the mortgage you qualified for. At settlement, the seller pays this contribution back to Payout One, along with a fee of 10% of the amount advanced.
Back to the example. You want to buy a home for $200,000, but only get approved for a $180,000 loan. You have your broker download and fill out the application form for Payout One. It gets faxed to the processing department. Payout One advances the money and you schedule settlement. At settlement, the $20,000 is already in escrow and the mortgage company provides a check for $180,000. The seller gets the $200,000 price, but then pays $22,000 back to Payout One. This is money that you do not pay back, as it is not a loan. Basically, you have purchased a property for $200,000, but only have a loan on it for $180,000, leaving you with $20,000 in equity.
This program can be used for a single family home, or for a multi-unit building. It can also be used for commercial properties or even raw land. It can not be used for 1031 exchanges or a couple other instances that are covered on the online presentation. Be sure to watch it.
Let’s look at how you can use the program to clear up debt-to-income issues. Suppose your gross monthly income is $4,000 and the maximum DTI that the lender will take is 50%. Thus, your total long-term debt payments can not exceed $2,000. Suppose that your total debt payments are $2,400, mainly due to $15,000 in credit card debt. Suppose that you are paying $500 per month on that debt. If you could make the debt go away, you would then qualify for the loan. If you have a willing seller, and there is equity in the property, you can use the program to advance $15,000 into your bank account. The title company will be instructed to use that money to pay off the debt balance at settlement, and thus you will be approved for a mortgage.
Hope this was interesting!
- No Deposit Home Loan Part One
- In this special report, I want to share with you a unique way to buy a home with no money down at all, and even how to get cash back at settlement. Plus, you will still have equity in the property. This program will work if you are buying a home for yourself to live
- Home Loan with Bad Credit
- You might be surprised to learn that home loans for people with bad credit are not as hard to get as some people would have you believe. Follow these tips to getting a home loan with bad credit. Find A Good Deal Finding a good deal on real estate can be challenging, but it can also be
- About Home Equity Loans
- Depending on the market, and the terms of the original mortgage, people can still walk away with a home equity loan that is at a lower interest than their first mortgage home loan. Home equity loans are generally widely available to all homeowners, even to those who have had some negative marks on their credit reports
- All About Second Mortgages
- What is a Second Mortgage? It is a loan taken out against your home on which there is already a primary mortgage. The home equity is used as collateral for the 2nd loan. The 2nd mortgage has less priority compared to the first on the same property. So, if you default, you want to clear your first
- Second Mortgages
- What are Second Mortgages? A second mortgage is a loan made against your home when you already own a primary mortgage. The home equity is used as collateral for the second mortgage loan. Your second mortgage has less priority in comparison to the first on the identical property. So if you default you will want to clear
