Paying Off Seller Financing/Land Contract with a Bank Loan

[Sarah Lorenz]

I was recently asking about lenders that would pay off a land contract/seller financing after six months, which turned out to be fairly tricky. Almost anyone will do it as a purchase, but we were looking for a lender that would treat it as a refinance, because we wanted the lower costs and we were hoping to work from the appraised price, not the purchase price, since the property was under market value and we had made improvements--sort of like a BRRR, but for a primary residence. Fannie Mae prescribes that it has to be held for 12 months before it can be treated as a refi. If less, they have to use the lesser of the appraised value or the purchase price. If we had to use the purchase price, we would end up with an ugly Mortgage Insurance payment every month. We finally found that Loan Depot would treat it as a refinance AND use the appraisal value. They will also allow us to apply for a home equity line as soon as we would like to finance further improvements. So kudos going out to Loan Depot!