The following is a response to a guy who wanted to know how to Sub2 his house that had no equity. Here's the text of an email where I showed a guy how to pull cash out of his no-equity house, and come up with 20% down to buy a cheaper house for himself. [please excuse the typos, this is the exact text (me in blue), the seller is green]
If I seller finance my primary residence the mortgage is still on my credit report
Yes, this is true.
how does it help me purchase the REO as my primary residence?
You have to show that your old house is "sold".
You will have documentation showing the sale (HUD1 Statement) and copy of Land Trust, or Land Contract, or Promissory Note (Cognovit Promissory Note), or Deed of Trust, or whatever you use to facilitate a sale. I like Land Contracts coupled with Cognovit Promissory Notes.
This doesn't transfer title, but the Cog. NOTE makes the Buyer personally liable for the entire balance of the note without having to get a judgment (this is a rarely used or understood document, but I use it for leverage in getting a deadbeat out of my property in the event they become delinquent).
The REO wants $88,000 cash I may be able to scrap up 10% but the hard money I contacted wants 30% down and charges 13.99%.
Hard money lenders do not lend on owner occupied properties that I'm aware of. And their money is only temporary. As far as the price is concerned, you're talking about raising $8,000 as your total down payment?
This would equate to 10% for an FHA loan. Are you sure you can't get conventional financing with that much down on an REO? Are you wanting to use a hard money lender to avoid having to provide a credit and financial statement? I would talk with a mortgage broker and explain your circumstances and see what he tells you.
Selling your house on terms is EASY. There's lot of folks with five to ten thousand down and need seller financing with no credit check.
What's your house worth in this market? What's the payment? What are the existing terms of your loan? Are the payments fixed, or is this an adjustable interest rate with a "bad" future payment?
Assuming the payment is fixed, and the loan has no balloon payment, I would advertise your house as "owner financing", or "seller financing" or whatever people will recognize and do the following to get it sold:
1. Ask 10% down (Take what they have, and finance the rest over six month at most)
2. Say "No qualifying (and/or) No bank Qualifying" in your headline
3. "Take over payments"
4. List principal and interest payment only, not the entire payment with tax/ins/hoa's, etc. Take nice pictures of your house inside and outside.
Go to photobucket and upload your pictures.
Copy the html code from photobucket and paste that in the body of a craigslist ad. This will show all your pictures of your house with no limits in the body.
Go to craigslist and advertise your property. List all the amenities of the house. Figure out which type of buyer would most like your home. Who would it most appeal to?
Young families that need a yard?
What is the best features of your house?
Large Yard, rural---no neighbors?
Close to the largest shopping mall in the country?
Best schools in the county?
Emphasize that to the most likely prospect. This is called "message to market" advertising. You don't want to pitch senior citizens on your house if it has lots of bedrooms, or two story, etc.
However, a large family would be very interested, so mention that in your ad. Put your contact information ever three or four lines in your ad copy and create a sense of urgency about the deal "This won't last long with these terms!" "Don't Snooze, or you'll lose on this deal!"
Call Johnny today!
List the schools, shopping centers that are close by including any entertainment centers, etc.
Now... Go to Kijiji and set up an ad for your house with pictures you took.
Include all the amenities in the information box they provide. List the size, bedroom, garage size, fireplace, sprinklers, appliances included in the price, etc and every three or four lines put a call to action in the body inviting the prospect to... "Call Johnny today at (333) 333-3333 or email at "noequityseller@aol(dot)com" before it's too late!"
Repetitive calls to action get results. Answer the phone every time. Don't let prospects go to voice mail if you can help it.
That said, it's better to hold a "cattle call" for your prospects. This means you're having an open house on Thursday at p.m., or whenever it works for you.
This may be hard if you're not getting a lot of calls. So do your best here. But creating scarcity is a great motivating tool, if you can find a reason Buyers need to act quick. When two more Buyers show up at the same time, it creates some competition. You get it.
Make sure you've got your contracts together that you want to use.
In your case, you're not going to get a spread on the payment, so don't worry about that. You just want someone to babysit your over-leveraged loan until the value comes back. Chances are the Buyer that you sell to will move in the next three or four years without refinancing. This will happen.
Just re-market the house for another 10% down and see what happens. Eventually the loan will start paying down significantly. You might end up keeping the house after 10 years, when the loan balance returns to a retail amount. Who knows.
Keep the objective in mind: Sell the house to someone who can afford the payments, so you can qualify for a cheaper house, not so you can make money off the house anytime soon. Don't get greedy, when you discover the house has some appeal. Meanwhile, if you can get $8K from a new Buyer and then use the $8k you already have...you now have $16,000 for a down payment. Could this help you qualify for a new loan easier without using a HML?
This amount would be 20% down! There's Sellers who might finance you, even at a premium, but without qualifying you, if you gave them $16 in cash. Just saying.
That's it for me right now. Hopes this helps.
Want to know exactly how to do this step-by-step? Click Here: "Screw The Bank!"