Cash out from first mortgage?

[intendedaccel]

What is the name of your state? Minnesota

Hello, I am attempting to purchase my first home, but in order for it to happen I need to have some creative financing.

This whole thing started when a good friend of mine fell into a great deal on an estate. This of coarse meant he had to sell his home and fast. This is where I come in. I have been planning to purchase my first home in the next couple years, but I didn't intend on it happening this quick. Financially I'm in a less that stellar place to purchase this home, but it could be worse. I have a great job, awesome spotless credit history, but I have quite a bit of debt. 90% of this debt is tied up in my two new cars, that because they are quite new, I am negative equity wise enough to make selling them not an option. I also have no cash to put down towards the home.

Sounds pretty hopeless huh? Well the thing I do have going for me is that my friend is willing to give me quite the deal on the house. It's market value is $144,900 and he is willing to sell to me for around $120,000, perhaps a bit less. This would give me some instant equity in the home. I have already been approved at a mortgage broker for the full $144,900 market price.

What I want to do is finance the full market value price and cash out on the instant equity that is in the house, in order to pay off one of my cars. This will allow me to afford the mortgage payment. Is this possible? Any other advice you can give? Thank you very much in advance!

 

[MortgageGuru]

Yes and No. Rewrite the purchase contract showing the purchase price as the full appraised value. Have the seller do a Privately held second mortgage for 20% of the Purchase Price. Then, after closing open a HELOC, pay off the difference to the seller (~$4,057) and use the remainder to consolidate other debts. The seller will simply haev to agree to do carry the $4k for a short time. If you need help getting this done then e-mail me.

 

[intendedaccel]

Have the seller do a Privately held second mortgage for 20% of the Purchase Price.

Thanks for the help! You lost me at the above quote however, could you explain this a bit further?

 

[MortgageGuru]

The seller simply agrees to carry a private mortgage for you. It will have to be a full 20% in order for you to avoid having to bring 5% of your own funds to closing. Doing it that way is the only way to make it worth while. You will also be able to get a lower interest rate than you would otherwise get by getting the full 20%.

 

[intendedaccel]

Hmmm, I don't believe he would go for that. How easy is it to get a home equity loan immediately after you purchase? Lets say I paid $110,000 for the house, and it appraises at $140,000. Could I get an equity loan right away for $30,000?

 

[FloridaRob]

Guru, Correct me if I am wrong but Isn't your scenario illegal. That is basically a double contract. I assume that you want the seller to forgive a good portion of the 2nd mortgage once the deal is closed. And if the intention is to mislead the 1st mortgage lender then I think there is some fraud involved.

Under that same scenario, won't the seller have to pay a capital gains tax on the $140,000 instead of the $120,000. Granted it wont be that much of a differnce but still, it shows something that is not right.

 

[MortgageGuru]

Hey Rob. Actually that is a very common misconception. It is not illegal. As for the taxes, I couldn't tell you. I'll ask my accountant and get back with you on it.

 

[amortgageman]

Thanks Rob,

To understand the poster correctly, you already qualify for the full amount on the mortgage.

There is a vey good lender that will allow a no seasoning (meaning you have not been in the home for a full year) HELOC at appraised value.