Author Topic: Where to look for unconventional mortgage?  (Read 3459 times)

jo552006

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Where to look for unconventional mortgage?
« on: November 16, 2016, 09:42:46 AM »
My wife and I recently found out that the former house of a close family friend (foreclosure) just came WAY into our price range due to some issues that make it so a regular bank won't deal with it.  Namely, the lack of a deeded right of way.  The family friend still owns the land between the house and the road (they used their right of way to access the house, and the bank missed that the house was never deeded a ROW).

Being a foreclosure, the house does have some issues that need repair, but is worth FAR more than it would cost to bring it up to standard.  We aren't looking to flip the house, but to raise a family in it (when one comes along).  The problem is that we spent over 75% of our cash reserves this past spring on a piece of land we wanted to build on in the future, and even if we wanted we can't get the money out of that fast enough.  Due to that, we don't have the money required to negotiate and purchase* the ROW prior/concurrently to getting a loan, put 10% or 20% down on a construction loan, AND keep 6 months of P&I payments in cash that the bank requires.

*I would not expect to be given the ROW

If we are able to manage to find a way to finance the whole deal with a construction loan, we'd STILL have to use a licensed GC (per the bank's requirements) to do all the work required to bring it up to speed.  We won't be allowed to do most of the work ourselves which we are more than capable of.  A good example is that all but the last 100' of the proposed ROW has been roughed in and just needs gravel.  There's an excavator sitting 300' away that I would use to finish driveway yet a bank would require us to pay somebody else for the work.

My question is: Is there somewhere I can look for a non-conventional loan?  Ideally a bank, or private investor willing to lay out the cash required for the project, (purchase of house, purchase of ROW, and improvements), and essentially split the difference between what it would have cost with traditional financing and what it DID cost with non-traditional financing upon refinance.  In the interim, the lender would hold a mortgage on a property that upon deeding a ROW (step 1) is worth far more than the actual cash outlay for the project.  Rough numbers look like the return on the money would be around 10% in a period of less than one year (may be significantly less than a year).

Uturn

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Re: Where to look for unconventional mortgage?
« Reply #1 on: November 16, 2016, 09:54:25 AM »
Find out if you have a real estate investor club in your area, contact them and ask about hard money and private lenders.  They should have a list of them.   

jo552006

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Re: Where to look for unconventional mortgage?
« Reply #2 on: November 16, 2016, 10:16:02 AM »
Thanks,  that is a great idea.  Just out of curiosity, what is the end goal of private lenders?  To hold a note on the property and get annual interest, or to be paid upon refinance at earliest possibility, and do it again?  I assume the latter.

jo552006

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Re: Where to look for unconventional mortgage?
« Reply #3 on: December 08, 2016, 08:15:03 AM »
Wow,

What a weird turn of events.  Apparently the house does qualify for a conventional mortgage, though it does need some work being a REO.  There are loans that allow you to do work though, such as 203k loans, which I had lined up (plus I had the money for the repairs if the exceeded the $30k 203k allowance).  Now the bank (that owns the REO) tells me they are only accepting cash offers.  I'm pretty sure even though this is an awesome opportunity, the bank's going to cause this to fall through due mainly to lack of up front capital.

If anybody has any idea on any other place to look that would actually give me the ability to buy the house with cash, I'm all ears.  Honestly I'm amazed it isn't easier to get financing.  I realize this isn't the "traditional" loan, but it's still a good bet for any bank willing to invest, but after the housing bubble, bank's won't lend unless you fit one of their products exactly.  The hard money lenders were going to earn over 10% on their money had I gone with them, but due to the bank's unwillingness to accept anything but cash even that seems to be out.  Is there any (legitimate) place that I can borrow $150k @10% (or more) interest until I can refinance into a conventional loan?  Is this something that the lending club could be an option for?

Dicey

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Re: Where to look for unconventional mortgage?
« Reply #4 on: December 08, 2016, 08:27:33 AM »
Assuming family is not an option? Know anybody who works at a local non-profit? Anyone who fundraises knows where the money is. In my town, there is a small developer who quietly funds local projects, but only through word of mouth and referrals. Just put the word out everywhere. Good luck!

jo552006

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Re: Where to look for unconventional mortgage?
« Reply #5 on: December 08, 2016, 08:48:56 AM »
Family is not an option, 200k is a lot of money to anybody who we know well enough to even think about asking.  As far as local developer, I like that option, but have no idea how I'd find somebody like that.  I'm really trying to find an entity (bank, hard money lender, etc) that wants to earn good interest 10% APR (possibly more) that would look at the complete picture of what we're looking to do and realize there isn't anything high risk about the situation.

Cwadda

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Re: Where to look for unconventional mortgage?
« Reply #6 on: December 08, 2016, 09:00:53 AM »
Have you tried visiting your local credit union? Just going around to every single bank in the area and explaining your situation could get you some results.

tralfamadorian

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Re: Where to look for unconventional mortgage?
« Reply #7 on: December 08, 2016, 09:03:28 AM »
Personally I've never heard of a hard or private money lender working with an owner occupied property.

Daleth

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Re: Where to look for unconventional mortgage?
« Reply #8 on: December 08, 2016, 09:12:53 AM »
Hard money lenders effectively let you buy in cash, don't they?

jo552006

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Re: Where to look for unconventional mortgage?
« Reply #9 on: December 08, 2016, 09:18:15 AM »
You are correct on the hard money lender.  I've never spoke with a private money lender so I cannot answer that.  With regards to the hard money lender, we are going into this as though it is a flip.  It is my belief that if the house would not qualify for a successful flip, then it is not worth my time.  I clearly told the lenders that we're flipping but that if my wife loves the house and wants to end up buying it we will just have that much more equity.   While it is possible that we may want to sell in the long run, I don't see that happening in the short term.  There are too many good things about this house for raising children, I don't see my wife WANTING to sell it when we're done.  We definitely can get a conventional mortgage once a few of the issues are fixed.

W/regards to hard money being cash, I agree, but the bank wants no financing contingency.  I am not willing to get into a deal without a financing contingency because then my ONLY out (to not lose my earnest money) is the inspection.

tralfamadorian

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Re: Where to look for unconventional mortgage?
« Reply #10 on: December 08, 2016, 09:43:40 AM »
W/regards to hard money being cash, I agree, but the bank wants no financing contingency.  I am not willing to get into a deal without a financing contingency because then my ONLY out (to not lose my earnest money) is the inspection.

Then a HM/PM loan may not be for you.  The typical use of these types of loans is to be able to make an offer without financial contingency.  Yes, your EM is at risk but if you shop your lender well, then the risk of them backing out is much lower than a traditional lender. 

Daleth

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Re: Where to look for unconventional mortgage?
« Reply #11 on: December 08, 2016, 02:43:17 PM »
W/regards to hard money being cash, I agree, but the bank wants no financing contingency.  I am not willing to get into a deal without a financing contingency because then my ONLY out (to not lose my earnest money) is the inspection.

An inspection contingency is the easiest "out" there is in a real estate deal. If you can get a standard inspection contingency--which boils down to "if I don't like what the inspector says I can back out"--you're home free.

I don't think a financing contingency will get you very far if you're planning on using a hard money lender, because usually financing contingencies are like "if I can't get a 30-year mortgage for no more than 4.25%, I can back out." Hard money loans, according to a friend of mine who has flipped houses that way, are more like "we give you a bunch of cash, you pay 10% until it's paid off, and it has to be paid off within one year"--in other words you have to flip the house or re-fi--"or we own the house." But talk to a hard-money lender if you're still interested; I think those loans go a lot faster than standard mortgages--there's no 2 months of asking for more copies of your bank statements and waiting for the appraisal--so who knows, maybe you can have the loan all but locked up before you even make your offer? Worth asking, anyway.

jo552006

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Re: Where to look for unconventional mortgage?
« Reply #12 on: December 11, 2016, 10:28:40 AM »
Yeah, I have the loan locked up.  If they reject my next offer with hard money, they are just looking for somebody to buy the house cash.  (no financing at all)

As a side note, hard money is more like 12k down and 14% interest.

On our last offer (which had a 203k loan... that the house SHOULD qualify for) was rejected with esentially,
"We don't want to waste time with financing because we don't think it will qualify"  if they reject a hard money loan based on that reasoning, then we would HAVE to come up with cash.