Executing actual selling-financed wrap mortgage


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  • So we have been researching the seller financing wrap mortgage concept. Using this example- our question is what is the process of the actual execution once the deal has been made?
    EX:
    George bought a house in 2017 for $385,000 at 4%. He sells the house for $430,000 at 7% interest. The highest bidder sale (for down payment) gives him 10% ($43,000). So buyer has a new mortgage on the house of $387,000 at 7%. So George makes 7% on $2,000, in addition to a 3% spread on the original loan value of $385,000. Are we tracking this correctly? How frequently do the sellers change the percentage rate? Is this common practice?

    Questions:

    1/ Does the new buyer go to a mortgage company with these new terms and say this is what I need a loan for? How does the execution of loan actually work to get the buyer to make the payments to get the seller the money they need? Ideally if you can break it down into bullet points or flow chart- it would help immensely.

    Paul,

    Here’s a question — where are you in this transaction?

    FIRST: When dealing with owner/occupants make sure you are protected 6-ways from Sunday. Emotional owner/occ’s get upset when they see you’ve made $$ on their home. See lawyers full employment act!

    First things first — make sure you disclose everything to ALL parties.
    See the above lawyers reference.

    Make sure you are making enough profit to make this worth the risk and to compensate you for your time / expertise.

    Your explanation of the interest rate spread seems right.

    An option at the current loan balance may be one way to get you in the deal without having any liability after it closes.
    Because if/when things go sideways down the road, you don’t want to be in the chain of title.

    Let’s say its a go — the buyers will be paying the seller or a 3rd party company to collect their payment @7%, disburse the proceeds to the bank @4% and the seller for the difference. The 3rd party company also pays the property taxes, HOA / homeowners insurance.

    The buyers must know the bank has the right to call the 4% loan due to a transfer of title. I’ve not personally seen this happen due to anything other than non-payment.

    — after a certain period of time, say 3-5 years, the buyers will be seeking a new mortgage to refinance their 7% loan, assuming the equity and credit are in good standing.

    The existing 4% loan will be paid off with the refinancing, the seller with the help of a title company, will collect the difference between the 7% note and the 4% bank loan.

    I’m not clear on your question about the sellers changing the interest rate. If you mean they raise the rate during the period the buyer is making the payments @7%, they normally do not. It just complicates the deal. Homeowners want clean and simple.

    Hope this helps,

    Mike

    PS – Jackie, how would you respond?

    Included with your membership are several Special Reports – see the one titled Buying Subject To – it explains in detail how to do a wrap and includes sample paperwork.

    To get to the Special Reports, after you log in, look on the LEFT side for the Special Report link.

    When doing a subject to wrap, the buyer does NOT get a new mortgage from a mortgage company. But they will have a note/mortgage and a recorded deed of Trust which spells out the terms of the wrap mortgage.

    The title company or escrow office will create all the necessary documents to protect all parties.

    The Special Report will help you understand the process better.

    Like Mike said, unless then is plenty of “skin in the game” it is not worth your time to get involved with a transaction.

    Sometimes, it is better to just get an Option then sell your option or do a Highest Bidder Sale. Get in, get out quickly instead of staying in the middle of a transaction where there is little equity and little cash flow.

    It’s not about doing deals… it is about doing QUALITY deals.. and I prefer less risky transactions too.

    Sometimes we spend too much time on something that we should just walk away from so it frees up time to work on better transactions.

    10% equity is a skinny deal.

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