Chicago, IL · Member since 2014 · 1 post · 0 votes
Maybe you all can help me out here. I'm confused on some aspects of seller financing.
My sister wants to sell me her house for what she owes in it, which is 80k. It's appraised at 93k. I don't want to put a lot down. Her interest is 7% and she still has pmi until 75k is left on the loan.
I would like to offer the following owner financing.
5k down, which will bring her loan to 75k and remove pmi.
Refinance in 1 year to conventional 30 year Lon. (because I've read you need that long to get a bank to approve it)
My questions are: why can't I use appraised value in some way? Seems like I'm not getting to use that 93k number in any calculations.
Second, how does a ballon payment work? I understand the refi but not this "balloon payment" I keep seeing. Do I have to refi twice?
Welcome to Bigger Pockets! There are ways of doing this, but I don't believe she can seller finance a home she doesn't own outright. One of the options is to do subject to. Search it on here.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Have a look at her loan documents regarding PMI. In many cases you have to get to 78% of the original value, or a new appraisal, whichever is less. And you often have to pay for an appraisal. She should call her lender and get specifics and read the documents.
You may be able to refinance quicker than a year. Talk to lenders in your area.
What you're doing is called a "subject to" deal. You're buying the house subject to the existing mortgage, which you will begin paying. There are risks for both you (the lender can call the loan) and your sister (missed or late payments by you affect her credit.)
A balloon payment means you have to pay off the entire loan at that time. You won't have that on the mortgage you get, assuming you're going to live in it. Its common on investor and commercial loans. A common investor loan has interest only payment for 6-12 months than a balloon. The balloon means you have to pay it off at the end of the term. Commercial loans might say "amortized for 20 years, due in five". That means the payment is computed as if its a fixed rate, 20 year loan, but after five years it has to be paid off. You used to see this monkey business on residential. Banned now.
Lender · Portland, OR · Member since 2013 · 88 posts · 38 votes
12y
@Jon Holdman is correct about the PMI. if her original loan amount has been paid down to 78% the lender is required to remove the PMI, otherwise you will need to show them that the current LTV is below 80%.
Most lenders will not allow you to refi in less than I year on title. You will run into Continuity of Obligation issues with Fannie. You will need to find a broker that will manually underwrite your file and point out that she is your sister, automated underwriting will kick it out.
The borrower has been on title and residing in the property for at least 12 months and has either paid the mortgage for the last 12 months or can demonstrate a relationship (relative, domestic partner, etc.) with the current obligor.