Owner financing first, then mortgage?

Question

I found a house for 117k owner is willing to do owner financing at 800/mo with a 5 year call. With a down payment of 14k. She owes 103k on her mortgage but wanted 117k so that's how I came up with the 14k down payment. I want the house as a rental. The current tenant will pay 1150/mo. it's in disrepair and needs about 5k in work. The ARV is about 170k. I'm trying to brrrr.

1. If I do owner financing now, can I get a mortgage in the future to cover the remaining balance of the loan? Or would it be better to try and get a mortgage first.

2. is this how you brrr?

Glidden Rivera · Answer

@James ArchuletaThat is subject to, I have done it plenty of times. You can have an attorney draft the agreement, have it recorded and you get the deed. I recommend you make the payment directly to the bank ( you will need passwords and pins) additionally you will need an affidavit or power of attorney so you can have access to info when needed. I also recommend you do a title search, you don’t want to find out in 5 years time that the title is encumbered by someone or something. Subject to financial gos awesome, it is a good way to acquire it, I would try to negotiate the down payment a little more if possible.For the BRRRR to work you should know that when you Refi that you may get between 70-80 LTVYou need to factor this so you know how much you can get out of the deal or how much your leaving in. Ideally, you buy the right property at the right price so u can put your money in, pull it back out, then repeat. Check out the bigger pockets YouTube channel for detailed videos on BRRRR

Kase Knochenhauer · Answer

Sounds like the arrangement you are discussing is called "Subject To" where you can quit claim the property to the new owner but leave the mortgage in the sellers name. Depending on your area this can be semi-common or totally unknown.I recommend spending some time researching Subject To conditions inside Bigger Pockets (I think there's an entire podcast about it) to better understand how it works in comparison to a land contract. Here's my quick and dirty explanation though:Land Contract or Seller Financing: The seller acts as the bank and holds a note on the property (Memorandum of Land Contract) which the buyer pays back over time.Subject To or "Subject to the existing mortgage" : Now the seller relinquishes the property to the buyer (using a Quitclaim rather than traditional title closing) while leaving the mortgage in their name. The buyer would pay the mortgage to the lender directly (typically without the lender knowing that the ownership of the property has changed.)*You can BRRRR the property in either case by performing a refinance after the repairs are made.

Charles Carillo · Answer

@James Archuleta Are you going to be taking over their mortgage or are they paying it off and offering seller finance? If you are assuming, you need to speak to an attorney that is familiar with this and I believe you need to use a land trust but they will let you know.

Dennis M. · Answer

The highest and best use for single family is owner financing it then a lease option then a rental . I would sub2 it to gain control ..keep the existing loan in place ,give her some walking money then once she’s out of the way ..I’d lease option the house to a good tenant and let the next person go over budget rehabbing your asset ! i know that sounds easy but there’s a lot of moving parts and it requires a certain level of sophistication on your part to structure this arrangement

James Archuleta · Answer

@Dennis M. If it's were rent alone, it might be a crappy deal. but I'm thinking I'd lease-option to sell it or sell it outright.What do you think of that?

Dennis M. · Answer

@James ArchuletaYou got about four financing strategies in your idea lol look this is a sub2 deal and frankly She doesn’t have enough equity to be offering her 14 grand in this price bracket . I think your rationalizing a lousy deal . If it’s only able to get 1150 in rents it is a crappy deal Atleast for a rental aspect . She could owner finance it to you via what’s called a “ wrap” which can trigger a due on sale clause but so could a sub2 . Is it really worth the headache . Sure doesn’t look very exciting to me but what do I know

James Archuleta · Answer

@Kase Knochenhauer I'm not sure what the terminology is but the Subject to seems like what I'm trying to do. I just want to make sure that I'm not shooting my self in the foot and that I will be able to refinance later to pay off the house or potentially cash out the difference. Sounds like you're saying that I can.

James Archuleta · Answer

@Charles Carillo They will still be making payments to their mortgage, I will be making payments to the seller. They are not paying off the mortgage.