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This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home's sale price, the term of the loan desired, buyer's down payment percentage, and the loan's interest rate. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
One of the questions I see asked over and over on the REI
newsgroups is "Can the seller get another loan?" This is a great
question because it so often is one of the objections raised by
a seller when a creative offer is being discussed.
The short answer is "yes". Only in rare situations would a
seller not be able to qualify for another loan. This, of course,
assumes the seller would typically qualify if they were not
going to leave their loan behind. Let's explore the possible
explanations that can be used with the seller.
Straight Rental
If the seller doesn't sell the house and plans to move anyway,
the seller will be forced to either lose the property to
foreclosure or lease the property out soon.
Yes, there are other solutions, but this is what the typical
motivated seller sees as their options by the time they jump on
the phone and start contacting real estate investors. The above
responses seem to be the two most common answers to the "What
will you do if it doesn't sell?" question.
So, let's assume for discussion purposes that we are not
involved at this point. If the seller finds someone to lease
their property, the seller's loan will still be in place. The
seller may or may not have landlording experience and may or may
not have a decent tenant. Those arguments come in handy for
other objections, but don't really affect the "new loan"
scenario.
Most lenders will give the seller a 75% income credit toward
their debt ratios. For an example, assume the seller has an
underlying payment of $750 and a tenant who's paying $1,000. The
lender will include 75% of the rental amount, or $750, as income
which will help offset the underlying debt payment of $750. It's
not actually a "wash", but it's pretty darn close.
Even if the rent were only $750, the 75% rental income credit
would equate to $562.50, against the monthly payment of $750. In
my experience the $187.50 is usually not enough to disqualify
the seller for the loan.
So, to summarize, regardless of whether you plan on acquiring
the property through a lease option, Sub2, or some other form of
creative financing where the existing loan stays in place, the
worst case scenario should be that the new lender treats the
property as if it's a rental.
Lease Option
If you've entered into a lease option agreement with the seller,
this may work favorably for the seller in qualifying for a new
loan. Again, worst case should be that the property is treated
as a straight rental. Best case would be that the lender gives
the seller full credit for the debt payment.
Sometimes the lenders have different requirements to "prove" the
payments are actually being made by the investor. In the past
I've been asked to supply a letter confirming my agreement to be
responsible for the payment. Sometimes having the seller show
the lease option agreement may be enough. Other times I've had
to actually round up copies (front and back) of the cancelled
checks and mail those off.
As far as I know, I've never had a seller not receive full
credit for payments that I'm making and the sellers will
typically contact me when applying for a new loan. I invite them
to do so when having the initial discussion about the
Due-on-Sale (DOS) clause and the "How do I get another loan?"
concern.
Owner Financing
Generally, this will be a no-brainer if the transaction is done
in a "traditional" manner. By this, I mean that a document
exists that can be shown to the lender as evidence of the
transaction and agreement. It could be a promissory note and
deed of trust or mortgage in some states), contract for deed, or
similar document.
I think that some investors become more concerned when
purchasing the property subject to the existing financing
(Sub2). Since many Sub2 transactions do not have a "traditional"
type document that proves the purchase, a bit more effort may be
needed here.
Depending on the language in the purchase agreement, this may or
may not be an issue. More often than not my sellers are able to
prove the sale by providing the lender a copy of the agreement.
Since my agreement states that I'm responsible for the payments,
this will frequently satisfy the new lender.
If it doesn't do the job by itself, adding a copy of the
completed HUD-1 Settlement Statement will boost the argument.
Regardless of the fact that I filled the HUD-1 out myself, it
does evidence the fact that a sale took place. Until you know
what you're doing, I would recommend allowing the title company
or closing attorney to complete the form for you. If you're
buying title insurance on the deal, it will most likely be done
for you anyway.
If you decide to do it yourself, you can get a fillable PDF copy
at the link below (under REI Forms). Use a copy of a prior
transaction to use as a guide and/or have someone knowledgeable
review your work.
http://TexasRealEstateClub.com/links.html
Time for a quick side note here. Some loan officers and real
estate investors will offer up the suggestion that you either
create a "contingency" document at the time of purchase or
backdate one at the time of the loan application. Utilizing a
document (typically a Contract for Deed) that really plays no
part in the substance of the transaction just for the purposes
of making it easier for your seller to get another loan is not
only unnecessary, but potentially fraudulent.
So, even on a Sub2 transaction which typically involves less
documentation and is unfamiliar to almost every party who will
be involved in the seller's loan process, proving the payments
are being made shouldn't be a big issue. It may require some
additional effort by the investor if the purchase agreement and
HUD-1 are not sufficient proof, but the seller can qualify for a
new loan and will typically receive full credit for their prior
debt payments on the property.
One potential risk that I have not run across personally might
be if the seller somehow ended up at the same lender who holds
and/or services the first loan. Perhaps that would cause some
problems, but again, this is easily addressed when having the
initial DOS discussion.
To summarize, the seller can get another loan even after leaving
the prior one in place and this objection should be a non-issue
when discussing the acquisition of their property, regardless of
which creative technique is used.
Sincerely, Tim Randle
http://TexasRealEstateClub.com
(c) Copyright 2002, All Rights Reserved.
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