Mortgage note or cash?

Question

Jeff Lipple · Answer

Thanks all for the input and pointers.  I didn't explain myself very clearly.  Basically what is happening is my dad is taking out an unsecured loan for the 18k and giving it to me for the house.  Now I've written up a mortage note and will be making mortgage payments to my dad.  So there is a mortgage written up and a paper trail of payments being made to him so that I can refi.  As for being able to refi 18k I guess we'll see, because the mortgage guy is saying he can do 18k.  I'll let you know what happens.

Edward Burns · Answer

As you can appreciate, the loan terms will vary with location credit score and other factors.  For the following, I get:

Loan Information September 29, 2013 - 1:46 PM CT

City:
			
			
				All
			
		
		
			
				Amount:
			
			
				$25,000
			
		
		
			
				Home Value:
			
			
				$35,000
			
		
		
			
				State:
			
			
				Illinois
			
		
		
			
				County:
			
			
				Winnebago
			
		
		
			
				Escrow/Impounds?
			
			
				Yes

City:

All

Amount:

$25,000

Home Value:

$35,000

State:

Illinois

County:

Winnebago

Escrow/Impounds?

Yes

Loan Purpose:
			
			
				Refinance Cash Out
			
		
		
			
				Property Use:
			
			
				Primary Residence
			
		
		
			
				Property Type:
			
			
				Single Family Home
			
		
		
			
				Lock Period:
			
			
				30 Day
			
		
		
			
				Credit Score:
			
			
				680 - 699

Loan Purpose:

Refinance Cash Out

Property Use:

Primary Residence

Property Type:

Single Family Home

Lock Period:

30 Day

Credit Score:

680 - 699

Good Faith Estimate:

Mortgages to be paid with this loan

$0.00

Guaranteed Lender Fee

$1,995.00

Guaranteed Discount Points (if any)

$773.50

Services We Select

$478.25

Guaranteed Appraisal Fee

$395.00

Guaranteed Credit Report Fee

$16.75

Guaranteed Flood Cert Fee

$5.50

Guaranteed Tax Service Fee

$61.00

Guaranteed Settlement Agent and Guaranteed Lender's Title Insurance

$705.00

Guaranteed Govt Recording Charges

$86.50

Escrow/Impound Account Deposit

$711.24

Prepaid Interest

$40.36

Your new loan amount

($25,000.00)

Estimated Cash to Be Received at Closing

$20,210.15

Dawn Anastasi · Answer

@Edward Burns

I did a lookup of Aimloan.com with the following parameters:

• $25,000 loan
• $35,000 value
• $1300/year property taxes
• Credit score 740+
• Investment property

I came up with the following:

• 30 year amortization, 5.125% rate, no points
• Lender fee less rebate = $905.25
• Appraisal, credit report, flood cert, tax fee = $578.25
• Settlement agent and title insurance = $475.00

You indicated you're seeing about $4,000 - $5,000 closing costs but I'm not seeing that.  Maybe I'm missing something that you're seeing.

Ramon Jenkins · Answer

@Tim Martin I sent you a private message.

I do not want to be spank this week.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

" As I invest in Milwaukee I would be curious for future reference

what the name of the credit union you mentioned above is. "

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Edward Burns · Answer

Looked at aimloan.com.  Their "closing costs" are outrageous, particularly their "guarantee lender fee ". $4000 - $5000 closing costs on a $25000 loan is almost usury in my opinion even considering that some closing costs are fixed.  I ran the  numbers based on 35K owner-occupied SFH with taxes of $1300/yr for a loan of $25K and medium credit score.  For comparison, this house is real and the closing costs when bought in July for $9K cash were about $900.

Dion DePaoli · Answer

If the $18k is "unsecured" it is not a "Mortgage Payment".  It is unsecured debt like Ellis mentioned.  
	
	That is an important idea as mortgage payment history will be looked at in underwriting.  However, you are not giving a mortgage unless you draft the security instrument and then you should also record it.  Stop calling it something it is not so you clear up any potential confusion.
	
	I don't know why the advisor is suggesting to not record an instrument, I would suggest you draft and record the instrument.  You never know what will happen in the future and you want your parents interests secured in the real property. This will protect them from many other liens taking priority and gives them an interest in the real property.  
	
	If the loan amount of $18k is NOT secured by a mortgage, it is unsecured debt and an unsecured debt is a Cash Out Refinance which carries restrictions on LTV and can affect rate.  I would be inclined to call it bad advice.

The general conventional minimum loan amount is $50k  So as everyone suggest, you will have to find a local bank or credit union who will portfolio that loan amount as it can not be sold to one of the GSE (Fannie/Freddie).

To some extent, I question why you even need to refinance.  You're going to spend extra money on closing costs and the terms from your parents will likely be as good as a bank.  The loan amount is so low, you might be better off simply trying to pay it down faster than messing with a refinance.  
	
	It is also not clear what the property value is.  So the loan amount you would actually be looking at refinancing is less than $18k as you would make payments on the principal of the loan over the course of time before you refinance.  So you need a bank that will refinance under $25k (technically under $18k), which is certainly getting into a tough area of financing.  Usually you are not going to find a bank which will do a refinance at 100%.  So if the property value doesn't increase, the value will be $25k.  At $18k you need a loan of 72% LTV or less.  At $25k it is 100%.

Tim Martin · Answer

@Matt Morgan.

As I invest in Milwaukee I would be curious for future reference what the name of the credit union you mentioned above is.

Thanks!

Matt Morgan · Answer

I should add that www.aimloan.com services investor loans as well as cash out refinances for loans with a minimum amount of 25k. They are an online lender and service many different areas.

Matt Devincenzo · Answer

The usual minimum I have been told from "most" lenders I have called/emailed/talked to is in the 50-70K range usually. Now my local credit union with their whole one branch that my family has been using for about 25 years, they said a 20-25K loan was fine with them. Though I haven't actually attempted one and don't know for sure how much their fees would be, or if it would end up falling apart if I actually tried to get one but that was what I was verbally told by them.

Matt Morgan · Answer

Just so you know it's feasible, there is a credit union in Milwaukee that does immediate cash out refi's with no seasoning for loans under 50k. If it can be done there, I'm sure there is a bank or credit union in your area that has the same product.