A question by jdbnosik : When my husband and I sold our home, we took back a 5-year second mortgage for the buyer. Now that we’ve found a home we want to buy, we don’t have enough cash for a down payment, but would like to use the second mortgage as the down payment, and sign it over as a deed of trust with assignment of rents … or something like that. What we’d like to know is whether or not that can be done? Or, if that can’t be done, what kind of transaction can occur that would allow us to us to use that second mortgage as the down payment? I’d appreciate a response from a knowledgeable real estate person, mortgage lender, or other financial/contracts professional. Thank you. jdbnosik
Answers
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A loan that has a lower priority than the original (first) mortgage is referred to as a second mortgage. If someone is willing to make a loan in that situation, you can also get a third or fourth mortgage.
Liens have a priority system. The first voluntary lien on the property is the first mortgage. Property liens do in fact have other considerations. Priorities are ordered from the highest levels of government downward. Even if you believe that your property has one (or two) mortgages, there may be other potential priority. For unpaid taxes, the IRS may take action. If you haven’t paid your property tax, the taxing authorities in your county will take action.
For unpaid taxes, the IRS may take action. If you haven’t paid your property tax, the taxing authorities in your county will take action. They take action by requesting payment and then offering the property for sale at a tax deed auction (after a prescribed process). These prospective governmental liens take precedence over the first mortgage.
One of the reasons you require title searches is because of the lien system. It is also the cause of the seemingly difficult loan application process that you must go through. A property that you buy as well as one that you already own will be subject to an IRS lien if you have one.
Suppose you purchase a $200,000 home in 2015. You provide $ 20,000 while borrowing $ 180,000. You agreed to a 25-year mortgage for $180,000.
Now in 2019, It turns out you struck it lucky and bought a property in a more sought-after, expanding community, and your house is now worth $250,000. Your equity is $71,000, which is made up of $21,000 from the initial meeting and an additional $50,000 from the increase in assessed value.
You will receive a low interest rate on the second loan if your credit is really strong, such as over 750; otherwise, you will be charged higher interest.
Another choice is to simply refinance your first mortgage rather than applying for a second one. In this case, the bank would lend you the money necessary to pay off your first mortgage, and you would keep the excess money. For the increased sum, one new mortgage.
There are two more factors to consider. First, banks won’t lend the full worth of your real estate, so you cannot borrow $250,000 from them. maybe $ 220,000. You’ll need that signature if the property has a second owner, such as your spouse.
Vaor
“Yes. A second mortgage note can be used as a down payment. As a matter of fact, anything of value can be used as a down payment as long as both parties agree. A lot depends on the seller of the home you are buying. If it is an individual that can sell with owner financing, they may be flexible enough to take part of the down payment in cash and the other as a note. Be sure to check with local real estate laws in your state. Each state is different. Get a good real estate attorney to represent your interest and draw up the papers. You should be fine.”
Anonymous
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