Archive for Seller Can Get a New Loan

Win the Race to Sell House

November 22, 2008 at 3:40 pm · Filed under Seller Can Get a New Loan, Selling Houses Fast, Selling a home as is ·Tagged , ,

Today’s home seller needs an edge to make their homes stand out in a buyer’s market. Besides making their home most desirable, sellers need to monitor all aspects of their sale.

Selling a house is like a steeplechase race horse jumping over hurdles. Some race horses make the jumps look so easy; they run and jump in rhythm under the jockey’s guidance. The home seller’s job is to make home buyer’s hurdles easy to jump. Home buyers make up their minds about a house on each step they take or every barrier they cross. As a home seller, you need to make sure your buyer crosses each barrier. Here are eight hurdles for you to win the house race.

Hurdle #1 Listings and Ads

Buyers make up their mind about the advertisement or listing whether or not to continue reading. That means they approve of the basic features and price.

They must see something in the advertisement or listing that makes your house stand out in a crowded market. To entice a buyer to pick up the phone and call about your house, the buyer must read some benefit that they want. This should be your property’s best benefit to the buyer, such as "Live across from Eagle Point Park; enjoy the views and playgrounds" or "Move right in without fixing or painting a thing. Owners will even help with your costs."

Hurdle #2 Yard Signs that Attract Attention

The yard sign should look professional and not take away from the appeal. Many over-sized yard signs clutter the landscape. Put the sign to the side a bit and consider a shorter sign for smaller houses.

Instead of wasting words with the all the amenities, make the phone number legible from the street and list the best feature not obvious from the curb.

Hurdle #3 Non-Generic Sales Flyer

Perhaps a house shopper will be interested enough to get out of their vehicle and pick up a sales flyer. This means that the flyer needs to be written with sales copy that gives motivation to see the property. A "ho-hum" generic flyer with a long list of features should be rewritten using Marketing Psychology with strong benefits to the buyer.

Hurdle #4 Curb Appeal

When shoppers pull up in front of your house, the first glimpse must impress them enough to get out of their vehicle to see what’s inside. For condo sellers, the development has to pass approval and your unit should stand out with added appeal like large potted plants near the door in colorful containers. The typical house needs pizzazz near the front door to draw the eye into the house. You must entice the buyer to cross the threshold to see what’s inside.

Hurdle #5 First Impression

Inside, the typical house shopper makes up their mind within 15 seconds whether or not they’re interested in your house. This is why the first sighting inside must pass inspection and peak interest.

Hurdle #6 Lasting Impressions

To encourage shoppers to spend more than the usual four minutes previewing a house, use home staging strategies. Buyers select a home based on their emotions. They choose the home they connect with and one they think "feels like home." This just doesn’t happen in four minutes.

Houses that spark fantasy about living in the home, enjoying a better lifestyle, and entertaining friends help buyers make up their minds.

Hurdle #7 Easy Purchase

Buyers make offers on houses when they feel comfortable with the paperwork. If you’re selling by owner, have a basic contract on hand that doesn’t confuse buyers and have a closing agent or escrow officer draw up the formal documents later. If you’re selling by agent, your agent must be trained on how to handle negotiations beyond just filling out forms.

Hurdle #8 Keep Sale on Track

During the sale process, monitor all the closing details. Keep your home staged for the most important date: appraisal day. Invite you buyers to return early in the sale for their walk through so they stay "in love" with your home. Make sure all the appointments are made and kept, such as inspections, and contracts signed on time.

Turn house shoppers into motivated buyers, help your buyers jump the hurdles, and you’ll win the house race.

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Yes, the Seller Can Get a New Loan

October 21, 2008 at 10:25 am · Filed under Seller Can Get a New Loan

One of the questions I see asked over and over on the REI newsgroups is “Can the seller get another loan?” This is a great question because it so often is one of the objections raised by a seller when a creative offer is being discussed.

The short answer is “yes”. Only in rare situations would a seller not be able to qualify for another loan. This, of course, assumes the seller would typically qualify if they were not going to leave their loan behind. Let’s explore explanations that can be used with the seller.
Straight Rental
If the seller doesn’t sell the house and plans to move anyway, the seller will be forced to either lose the property to foreclosure or lease the property out soon.

Yes, there are other solutions, but this is what the typical motivated seller sees as their options by the time they jump on the phone and start contacting real estate investors. The above responses seem to be the two most common answers to the “What will you do if it doesn’t sell?” question.

So, let’s assume for discussion purposes that we are not involved at this point. If the seller
finds someone to lease their property, the seller’s loan will still be in place. The seller may or may not have landlording experience and may or may not have a decent tenant. Those arguments come in handy for other objections, but don’t really affect the “new loan” scenario. Most lenders will give the seller a 75% income credit toward their debt ratios. For an example, assume the seller has an underlying payment of $750 and a tenant who’s paying $1,000. The lender will include 75% of the rental amount, or $750, as income which will help offset the underlying debt payment of $750. It’s not really a “wash”, but it’s pretty darn close.

Even if the rent were only $750, the 75% rental income credit would equate to $562.50, against the monthly payment of $750. In my experience the $187.50 is usually not enough to disqualify the seller for the loan.

So, to summarize, regardless of whether you plan on acquiring the property through a lease option, Sub2, or some other form of creative financing where the existing loan stays in place, the worst case scenario should be that the new lender treats the property as if it’s a rental.
Lease Option
If you’ve entered into a lease option agreement with the seller, this may work favorably for the seller in qualifying for a new loan. Again, worst case should be that the property is treated as a straight rental. Best case would be that the lender gives the seller full credit for the debt payment.

Sometimes the lenders may have different requirements to “prove” the payments are actually being made by the investor. In the past I’ve been asked to supply a letter confirming my agreement to be responsible for the payment. Sometimes having the seller
show the lease option agreement may be enough. Other times I’ve had to actually round up copies (front and back) of the cancelled checks and mail those off.

As far as I know, I’ve never had a seller not receive full credit for payments that I’m making
and the sellers will typically contact me when applying for a new loan. I invite them to do so when having the initial discussion about the Due-on-Sale (DOS) clause and the “How do I get another loan?” concern.
Owner Financing
Generally, this will be a no-brainer if the transaction is done in a “traditional” manner. By this, I mean that a document exists that can be shown to the lender as evidence of the transaction and agreement. It could be a promissory note and deed of trust (mortgage in some states), contract for deed, or similar document.

I think that some investors become more concerned when purchasing the property subject to the existing financing (Sub2). Since many Sub2 transactions do not have a “traditional” type document that proves the purchase, a bit more effort may be needed here.

Depending on the language in the purchase agreement, this may or may not be an issue. More often than not my sellers are able to prove the sale by providing the lender a copy of the agreement. Since my agreement states that I’m responsible for the payments, this will frequently satisfy the new lender.

If it doesn’t do the job by itself, adding a copy of the completed HUD-1 Settlement Statement will boost the argument. Regardless of the fact that I filled the HUD-1 out myself, it does evidence the fact that a sale took place. Until you know what you’re doing, I would recommend allowing the title company or closing attorney to complete the form for you. If you’re buying title insurance on the deal, it will most likely be done for you anyway.

If you do decide to do it yourself, you can get a fillable PDF copy on the Real Estate Forms page on this site. Use a copy of a prior transaction to use as a guide and/or have someone who is knowledgeable review your work.

Time for a quick side note here. Some loan officers and real estate investors will offer up the suggestion that you either create a “contingency” document at the time of purchase or backdate one at the time of the loan application. Utilizing a document (typically a Contract for Deed) that really plays no part in the substance of the transaction just for the purposes of making it easier for your seller to get another loan is not only unnecessary, but potentially fraudulent.

So, even on a Sub2 transaction which typically involves less documentation and is unfamiliar to almost every party who will be involved in the seller’s loan process, proving the payments are being made shouldn’t be a big issue. It may require some additional effort by the investor if the purchase agreement and HUD-1 are not sufficient proof, but the seller can qualify for a new loan and will typically receive full credit for their prior debt payments on the property.

One potential risk that I have not run across personally might be if the seller somehow ended up at the same lender who holds and/or services the first loan. Perhaps that would cause some problems, but again, this is easily addressed when having the initial DOS discussion.

To summarize, the seller can get another loan even after leaving the prior one in place and this objection should be a non-issue when discussing the acquisition of their property, regardless of which creative technique is used

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