Every REO was at one point owned by an individual or an entity other than the bank. The owner was likely unable to make the mortgage payment and so went into default. (At this point many people decide to pursue a short sale in order to avoid foreclosure.) After the owner misses several payments (how […]…
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Are you contemplating investing in real estate? But you don’t have enough cash to do so. Here is a tip you can use as long as the person selling the property is willing to negotiate with you.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better guess is to find a land that the owner has great interest in offering it, whether because they are moving, a divorce settlement, or they are frustrated with the folks renting the property.
Actually, if you are currently renting and considering using this technique perhaps the owner would be glad to assist you! There are some variations that may be used depending on you and your seller. Do they want the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the initial lender to assume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make obligations while the property stays in the seller’s name.
You take over the first mortgage and get a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or three years. Rather than having the money stay in a bank they can be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ends you ought to be able to refinance the cost, or else you could sell. Unless you struck an actual bad market the value of the house should have risen by then.
Most mortgage lenders merely need to make a good investment. While your local bank may still be scared there are a lot of financial lenders that would want to make a deal. Financiers like property investing. The mortgage is usually based on 60-70% of the value of the land, so as long as they know they get their money back in the value of the land if you default, they don’t care what kind of income you make. Complete the deal with a 2nd mortgage created with the seller. If you default they can eventually foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can observe the complete picture. It is good that seller and buyer can work hand in hand. In the event they can’t wait for a sale, you may still give them their asking price with a little versatility on their part.