Does this sound strange

[monkatom]

I am working with a broker who can get me a loan. The loan sounds strange to me and when I asked for some clarification it got stranger. The broker said through this program I need to buy a short sale or new construction not REO as we need a motivated lender. When I asked why this was the response.

The answer to your question is yes, it is more advantageous for you to deal with short sales than REO's for this particular program because of the simple fact that the home value is based on a previous purchased value and with a short sale the comparable price is higher than the net price and the bank would rather have a higher gross on the sale of the property.

I hope this helps answer your questions, I don't want you to think that short sales are your only option, a builder could be an option for us as well as a private seller, so we have some choices.

Any suggestions as to what that means as it seems she wants me to pay a higher price than I would if I bought the home after foreclosure? FYI due to BK and foreclosure I do not qualify for FHA, etc.

[StartingOver08]

I do not understand the brokers response to you. As to the homes' value being based on the previous purchase price - I have never heard of that and I am in the RE business for 30 yrs. The homes value is based on the CURRENT market value, which in this market is closed comparable sales within the past 90 days. In fact, there are new appraisal regulations that are effective as of 5/1/2009 adding additional requirements for absorption rates and a neighborhood trend analysis to the appraisal to make sure the price is within the market. The appraiser will look at the last transfer of the property and indicate the transfer type (foreclosure, deed in lieu, etc). But the last sale price of the subject property does not influence the market value of the property today. The comparable sales are the measure of market value.

Are you planning to ask the seller to pay your closing costs and pre-paid expenses in your offer?

In our area, the banks REO properties are typically the lowest price in the neighborhood and it is common to have the bank pay the buyers' closing costs and pre-paid expenses as part of the purchase. On the other hand, we have not had success with the lender paying any closing costs for the buyer on short sale properties. Also, the lender looks at the NET figure for short sales. The offer is a gross offer, but the HUD is provided with the offer so the lender knows exactly what the net will be at the time of closing.

[monkatom]

no not going to have seller pay closing costs. It will be a hard money loan and for some reason she keeps steering me to short sales because she said the bank will be motivated to sell. It sounds strange to me as I would think banks would want to sell their foreclosed properties as well. I think something is fishy with the loan as her explanation makes no sense as to why we need to get a short sale.

[StartingOver08]

You are right to question the brokers' answer. Usually a hard money loan is based on the collateral only with a 60% to 65% LTV maximum. The lender is not going to look at past values - they are especially cautious to make sure they have the current market value. Their incentive is the interest rate on the loan is high and if the market value drops further, they are "protected" because they only loaned you 60% to 65% of the value.

[Logan]

no not going to have seller pay closing costs. It will be a hard money loan and for some reason she keeps steering me to short sales because she said the bank will be motivated to sell. It sounds strange to me as I would think banks would want to sell their foreclosed properties as well. I think something is fishy with the loan as her explanation makes no sense as to why we need to get a short sale.

So what is the interest rate? 12% or so. You are better off renting and putting your money away and then buy a house when you can qualify.

BTW...I used to work for a hard money lender and there is no way I would risk my investors money in the scenario you speak of.

Good Luck,

Logan

[monkatom]

She said 8-9%. Logan can I ask why? Is it because I have a BK and foreclsoure or because the broker is doing something strange?

[Logan]

She said 8-9%. Logan can I ask why? Is it because I have a BK and foreclosure or because the broker is doing something strange?

If I was still in the hard money business I would lend you money on a home if you were putting 30% to 40% and had a sound plan of how you will pay the loan back. I would also be charging 3 to 5 points in closing costs.

Anyone that I put in a hard money loan for a residence was desperate and I was very upfront with them about the costs of the loan. 100% of these borrowers should not have taken the loan because it did not make financial sense for them especially since a hard money loan will always make sense to the investor.

How much does she want you to put down? A true private/hard money loan will want you to put down 30% to 40% of the purchase price regardless of the true value of the home.

Maybe this person is real but the chances are that this will not workout and to get yourself a loan with a 9% interest rate at a time when rates are under 5% for people with good credit doesn't sound like a wise purchase.

Save your money until you can qualify for an FHA and you will be much better off. Real Estate values are not going to skyrocket so there is no hurry.

Logan

[monkatom]

Thanks for the info Logan. I know I will have a higher rate at the same time since we can pay about 2800 a month on the loan, excluding taxes, HOA, etc we were hoping to pay it off in 3-4 years so figured the interest would not be that bad since we could pay it off early. then we would rent out the condo and go FHA for a house. BTW thanks for the info on points as I never even considered that which could get expensive.

[monkatom]

BTW after letting lender know I did not understand the program and why we could only do short sales here is her response.

The program is basically called a simultaneous closing, the reason it works better with a short sale rather than a foreclosure is because the home value again is based on the previous purchased value and with an REO the comparable price versus the net price is not as aggressive and the bank would then have a lessor gross on the sale of the property than a short sale. The program is basically getting a private money investor to do a simultaneous close with the seller and private/hard money investor.

Does this make sense

[StartingOver08]

Walk away from this lender -

[monkatom]

startingover My gut was telling me the same since the loan seems fishy. Can I ask why you say to walk away? Just curious if there is something I should look for when dealing with other brokers. I do have another broker who said he may be able to get me approved but would have to run it by his lenders. He said we could buy any house we want after approval with a letter in hand. This sounds like a more traditional loan but his rates were higher which is why I was drawn to the other broker.

[StartingOver08]

BTW after letting lender know I did not understand the program and why we could only do short sales here is her response.

The program is basically called a simultaneous closing, the reason it works better with a short sale rather than a foreclosure is because the home value again is based on the previous purchased value and with an REO the comparable price versus the net price is not as aggressive and the bank would then have a lessor gross on the sale of the property than a short sale. The program is basically getting a private money investor to do a simultaneous close with the seller and private/hard money investor.

Does this make sense

This terminology does not belong when you are talking about financing a purchase. It sounds like the broker/lender is having the investor buy the short sale from the bank in their name then 'simultaneously' sell it to you (at a higher price) and hold the paper for you. That is why the broker has asked you to look at short sale properties. It just does not make sense.

If the broker were doing a regular hard money loan, then they don't care if you buy a short sale or REO property. They are only loaning you max 60-65% of the collateral value. Usually the interest rate is higher just like Logan told you. So there must be something else going on in this transaction.

Find an honest broker. You don't need to get involved with something fishy now. Better yet - find a seller willing to hold the mortgage. They are out there and it is much less risky then the hard money loan.

[monkatom]

would a private seller be someone who has a condo or condos and rather than let them go sells to me but holds the title until I pay them off? Would there be the possibility that I pay them and they let the house go into foreclosure and I am screwed?

BTW thanks for all the info and for helping me out.

[StartingOver08]

A private seller can own any type of real property (condo, townhouse, single family home). If they own it free and clear they can sell the property to you and hold the mortgage. The deed is transferred to you right in the beginning. It is a normal transaction, the closing attorney can write the note and mortgage. Many sellers do this as they make more money by financing the purchase for you. There is no bank involved. This is a very safe type purchase. The financing terms are custom between you and the seller.


What you described, someone keeping the deed to the property while you make payments, is slightly different. This kind of sale is called by various names: land contract, or contract for deed are two of the more common names. People that use this type of sale usually have an existing third party mortgage on the property. In this market you want to make sure if you are attempting a contract for deed that the property is not underwater and that the seller is current in their payments to the lender throughout the contract period. You need a real estate attorney that is familiar with Contract for Deed's so you are protected.

[gophermn]

Brokers suck. Ok, not all brokers but the dozen or so I know (THEY SUCK)!
They are looking out for their bottom line, not yours. My last closing the broker got me into a loan and had the appraiser appraise my house as if the basement was finished. It wasnt. Then they did comps that were out of this world. Comping my house against other houses 3 or 4 miles away when the homes on my block are like cookie-cutter. Needless to say I stopped the process.
Oh yea, it gets better. This broker found the appraiser who apparently was fired yet still using a company letter head to appraise homes - even though he was not technically working for the company anymore. WTF!

Brokers - blah!