Question about owner finance

[youngone]

Hello everyone I need some help here.   I wanted to know when doing a deal where the owner agrees to carry back a portion of the price of the house, how is this recorded and reflected to the bank or is it recorded at all for their records.
The property is  for sale by owner @ 160k, and they agreed to hold back 20k of the price.  It is worth 175k. What would be a good way to structure this deal. They do have a lot of equity but need money to buy elsewhere. Any help is aprreciated
Thank you, youngone

[WilsonTaylor]

Youngone,

It sounds like what you are wanting to do is have a first mortgage  for the first $140k and then have the seller carry a second mortgage of $20k for a total of $160k.  The buyer would have to qualify for the first mortgage with a bank or mortgage company and but would only sign the papers on the second mortgage with the seller.  The two notes are completely independant of each other (ie different rates, lengths, etc.).  

You mentioned that the property is "worth 175k" but the selling price is all that the mortgage company is interested in.  I recently paid $70k for a property that their appraisal showed was worth $115k at the time (current value, not after repair).  I still had to put $14k down to keep from having to pay PMI on the property although I now have about a 50% equity position in the property.  The price that the buyer agrees to pay is what the property is "worth".

Wilson

[youngone]

thank you, Wilson
So I don't have to let the bank know about the owner's and my second mortgage. Is that correct. Also Is there a way for me using this method to avoid paying PMI's. For instance, if we say the sell price is 160k and I put down 20k that the owner is holding back. Will that work or will the bank want to see proof of the 20k. Either way as long as the owner agrees to hold the mortgage for me I will pay the pmi.

[WilsonTaylor]

Youngone,

Yes you will have to let the bank know about the second.  They are going to ask you where the $20k is coming from.  They may not loan you the money if you are borrowing the money.  The only way to find out is to ask them.  Some will, some won't depending on the situation.  

As far as PMI goes, I do not know if they base it on their loan being 80 percent (or less) of the purchase price or if they base it on total loans being 80 percent of the purchase price.  I usually don't deal with PMI, so I can't help you there.  I do know that if they do make you pay PMI and your equity is 20 percent or more, you can petition to have the PMI removed.  On my last property, I probably should have paid down the $10K that I had planned, paid PMI for 1 month and then petitioned to have the PMI removed.  They really should not have required PMI if I had not put anything down since I bought at about 2/3 of current market value.

HTH
Wilson