# Financing issue...



## KentuckyDreamer (Jan 20, 2012)

My son was here for Christmas and I think he is bordering on depression.
He is 25 and has worked at the same job for years. He has rented the same apartment for two years or so.

He hates bills and is a tight wad. He pays cash for anything he needs including his vehicles. Two years ago he reluctantly got a credit card to "build his credit". His score is about 740 because he has limited history.

Two places refuses to discuss financing with him because he has never had a car loan. They want him to get a new or newer car and make payments for two years. Not only does that go against everything he believes in, it would mess with his debt to income ratio. He is so deflated.

Even when he said he would pay between 30 and 50 percent down they insisted upon the installment loan.

He will not play the game and I do not blame him...he is scared to death he will use his down payment if he keeps renting. Land contracts seem to be non existent. 

Any ideas that would not require him getting a new car and waiting two more years?


He has considered paying cash for vacant land but there is no guarantee he would could ever afford to build in this economy. 
Thank you


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## Lazy J (Jan 2, 2008)

You're not talking to the right banks. Get in front of a loan officer and not some mindless keyboard puncher that just looks at the BS FICO score.


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## nostawmama (Dec 29, 2011)

Go to DaveRamsey.com and find an endorsed local provider. His whole deal is being debt free and he endorses companies that work with people like your son.

Link Here.


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## KentuckyDreamer (Jan 20, 2012)

Thank you so very much. I will give him this info tonight. Thank you all so much!


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## po boy (Jul 12, 2010)

Sounds like he does not meet traditional credit guidelines and his best bet would be to look at FHA non traditional credit loan programs. Tell him to find a good FHA lender ant that should include most banks.


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## InvalidID (Feb 18, 2011)

740 fico and a thin file won't stop you from getting mortgage. Tell him not to go to a bank, instead go to a real broker. With that score he could get a Fannie loan and have it wrapped up in a month. 

Unless he is trying to buy raw land... Then it gets dicey.


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## CraterCove (Jan 24, 2011)

Yes, go to Dave ramsey's site and see what you can find. We live debt free and got a loan through a broker for our house, no down payment, low interest and no prepay penalties.

If he has utilities and has accounts in good standing, no late payments for 2 years or so then he should be able to get a loan. Don't go to a bank, go to a real loan broker.


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## cfuhrer (Jun 11, 2013)

What about an owner-carry?


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## Molly Mckee (Jul 8, 2006)

The company Dave Ramsey recommends is Churchill Mortage, but he says some Credit Unions and local banks also do manual underwriting. That is what your son wants to find.


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## Nimrod (Jun 8, 2010)

He wants to buy a piece of land with a house, put 30% to 50% down, and finance the rest? 

Is he having trouble finding a bank that will do this because he doesn't have much credit history or because they don't want to make such a small loan? Other posters have given you some places to check for a loan. Find one that will give him the loan and, if they don't want a big down payment, make sure there are no prepayment penalties. Use what would have been the big down payment to pay down the principal and you are where you wanted to be in the first place. Be sure to specify that the big payment is to be applied against the principal. Some banks will just apply it toward your payments if they have a choice.


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## Guest (Dec 27, 2014)

Nimrod said:


> ... Use what would have been the big down payment to pay down the principal and you are where you wanted to be in the first place. Be sure to specify that the big payment is to be applied against the principal. Some banks will just apply it toward your payments if they have a choice.



I did that when purchasing my newer pickup. I sold two vehicles to pay down the newer one. So, I took the loan out to buy the vehicle, and then as I sold the other two, paid off big chunks - leaving a very small loan left.


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## KentuckyDreamer (Jan 20, 2012)

I am thankful to each of the posters. Hopefully this will make him feel better. So far he had spoken to his bank ( he has a very nice savings account with them so they can see his history ) and then called a loan officer suggested by a realtor. Both said they would not even consider him so no application was filed. 

He has excellent rental and utility history. The boy once paid six months rent in advance...did I mention he was a tight wad and hates owing bills?


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## willow_girl (Dec 7, 2002)

The bank is probably pushing him toward a vehicle loan because they'll profit nicely from it. :flame:

Tell him that he needs to keep applying, and don't quit until he finds someone who will write a loan. He may have to pound the pavement for awhile, but eventually his work will pay off!

Small hometown banks often have more flexibility than the big name-brand ones.


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## CraterCove (Jan 24, 2011)

KentuckyDreamer said:


> I am thankful to each of the posters. Hopefully this will make him feel better. So far he had spoken to his bank ( he has a very nice savings account with them so they can see his history ) and then called a loan officer suggested by a realtor. Both said they would not even consider him so no application was filed.
> 
> *He has excellent rental and utility history. The boy once paid six months rent in advance...did I mention he was a tight wad and hates owing bills?*


Sounds to me he was raised very well. Good luck to him!


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## po boy (Jul 12, 2010)

KentuckyDreamer said:


> I am thankful to each of the posters. Hopefully this will make him feel better. So far he had spoken to his bank ( he has a very nice savings account with them so they can see his history ) and then called a loan officer suggested by a realtor. Both said they would not even consider him so no application was filed.
> 
> He has excellent rental and utility history. The boy once paid six months rent in advance...did I mention he was a tight wad and hates owing bills?


What do the lenders say the problem is????
Also, what state is the property in?


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## okiemom (May 12, 2002)

if he talks to a realtor and or makes an offer on a place they should be able to get him to someone who will loan to new buyers. From what you said there is no reason he can't get one. I would never go to my local bank for a loan as they are not set up for mortgages.


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## JohnnyRebel (Dec 23, 2014)

I have good credit (As of the first week of December it was 754) however I think FICO scores are BS....Around my parts of town we have that "Man's Word" Credit. We know who we can and can't trust

:gaptooth:


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## ChristieAcres (Apr 11, 2009)

In order to qualify for a mortgage loan, your goal is 4 credit lines minimum. Here is what I have told every single Client I ever worked with (who was qualifying for a mortgage). I have worked with folks with bad credit for up to a year and then found them a home. Here is the easiest way to establish credit:

Go to your bank and get a few prepaid Credit Cards (backed by a deposit into an account). 
****Use these credit cards to buy food, fuel, and to pay bills with****
Then, apply for gas cards
You can then apply for a Home Depot or other dept store Credit Cards

So, now you use these cards instead of cash and only use them for what you normally need to buy (food, gas, etc...). All of them must be revolving credit and report to all three credit bureaus (Equifax, Transunion, and Experian). 

Say, your Credit Card has a $1,000 limit. You never use more than 35% of this amount, pay it down every month (not completely off, leave a small balance on there). The same should be done with any card (gas, dept store, etc...).

It can take a year or more of this to qualify for a loan, but it really is this simple. You should insure that your Debt to Income Ratio is under 35%, including the mortgage (Monthly Debt divided by Monthly Income = DTI). This insures the best interest rate. Once you get your Loan, pay off the Credit Cards and shred 'em if you want.

True, some Credit Unions and Banks do offer "Portfolio Loans," which are underwritten and usually funded through private investors.

I think it is ridiculous that folks with good payment history, who just happen to pay cash, aren't being approved for loans. You'd think they were the best risks! Also, I feel those who live in mobile homes are highly descriminated against, too, as they have to pay higher interest rates.


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## Smoke_Adam (Jul 20, 2014)

I second checking out Dave Ramsey's site, I know on his radio program this is a recurring question. Especially with such a large down payment he should be able to get something unless it is a major fixer upper or under I think it is $50,000. I think under $50,000 is a different category, they wouldn't let me refinance my house because I didnt owe at least $50,000 on it.


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## CraterCove (Jan 24, 2011)

I think encouraging people to use credit they don't want to is wrong. The better idea is to force a change in the market by more people using alternate forms and broadening the field of options available.

No, it's not a right now solution for anyone. But it's how a free market is supposed to work, you don't like it, you make them change in order to get your money.


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## halfpint (Jan 24, 2005)

Our first two children had some of the same struggles as we have tried to stay as debt free as possible and taught them that also. For each of our children, we have helped them pay for a car after they have begun college - we've promised half up to $10K. For the first two, we just provided the money at the time of purchase and they provided the other half. With our third son, we had him deposit our half in his bank account, and get a loan for that amount on the car - but the bank is also using that money as security in addition to the car. Once he has paid a year they will release the savings, at which time he will probably pay it off, as he complains every month about how much interest he is paying. This will allow him to develop credit. He also is getting a credit card that will have a $500 limit that will be secured by money in his bank account.

Unfortunately, not only is it difficult to purchase a home without credit, it might be difficult to get a job. We know a wonderful young man that couldn't get a certain job as he had no credit, although he eventually found a better job. I've also been told that insurance companies check your credit rating and it affects your rates.

It's not a good system for those of us who don't like borrowing, but is the way for lenders to determine who to risk lending money to or renters who they can lease to. Unfortunately references can't be trusted much any more.

Dawn


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## TnAndy (Sep 15, 2005)

HUNT for someone wanting to sell with owner financing. Run ads in the local paper, run ad on Craig's List. They ARE out there. He simply hasn't found them yet, and most real estate agents aren't that interested, since it might cause them to have to work.

Selling with a good down payment and providing the mortgage holder with much better rate than they could get on a CD is a win-win for both sides.

We bought our land that way, and we've sold land that way. As noted above, raw land is especially hard to finance thru banks, so sellers have an more of an incentive to carry the note.

And by the way, you want to avoid 'land contracts'. Go the "note, deed of trust" route only, from a buyer's standpoint.


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## KentuckyDreamer (Jan 20, 2012)

TnAndy I have neverheard of the "note, deed of trust". Need to google that. May I ask why you do not think highly of land contracts?


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## KentuckyDreamer (Jan 20, 2012)

He is such a tight wad he will not even consider anything over $130,000 with about $50,000 down. And to him, $130,000 is criminal.


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## TnAndy (Sep 15, 2005)

There are two methods of owner financing.

*1. Land Contract, or Contract for Deed:
*
In this method, the seller writes up a contract in which the buyer makes payments to the seller of "X" amount for some given number of years. As long as the buyer makes the payments, the seller gives the buyer a deed to the property at the end of the contract. The seller fully owns the property right up until the end of the contract. 

The seller may put conditions in the contract (assuming the buyer goes along with them by signing) such as "no modifications to the house without written permission of the seller", or, "no cutting of timber" (understandable....he doesn't want to be left with a property stripped of it's timber after one or two payments), and so on.

Basically, it's an extension of renting, with the payments going toward the goal of eventually owning the property. Sellers use it to their advantage in that IF at anytime the buyer fails to meet any of the conditions in the contract, the contract may be voided, and the buyer/renter must leave the property. It is easier (read that as cheaper) for the seller than going thru the process of foreclosure, in which the buyer has many rights. The seller retains more control over the property until the deed transfers. 

The advantage to the buyer is they can buy a property with a simple signature, and often people who can't obtain financing any other way will go this route. The HUGE disadvantage is there is ZERO equity in the property right up until the end when the deed transfers. 

Let's say, for example, the buyer put 5,000 down on a 100,000 place, and made the payments for 15 years of a 20 year contract. Along the way, he drilled a well, put in a septic system, built a home on the place for cash, a barn, etc.....say he did a 100,000 worth of improvements over the years, and at year 16 he stepped into one of life's holes....got sick, disabled, lost job, whatever.....and couldn't make the payments for a while, or even ever.....what happens to all he has poured into the place ? It can revert to the seller, quite easily, since the buyer never owned the place !

The seller is then free to turn around and sell the now worth 200,000 place ( or more likely 300,000-500,000 after 15 years) again. The buyer gets nothing except whatever personal property he takes with him. Once it's attached TO the land (building, well, septic, road, grass, etc), it's real estate, and belongs to the owner.

The above IS an extreme case, but quite possible. Most of the time, "land contracts" are for folks with poor credit (not lack of credit because they don't borrow like your son), a history of walking away when things got tough, or making poor money decisions (GOT to have consumer toys over priorities like shelter), and the seller ends up with the property back in a few years. 

There are cases where it worked out fine for both, and I'm sure somebody here can cite just such an example. I simply would not go that route because of the lack of protection for ME, the buyer.



*2. Note with a deed of trust: 
*
This is the method used most of the time for conventional financing (bank, or owner). 

The buyer puts a down payment, and gives the seller a note for the rest. This note is secured with a deed of trust filed at the courthouse right along with the deed to the property (called a Warranty Deed in many States). The title to the property transfers from buyer to seller on the day of closing. 

The buyer now owns the property. (big difference), but the property also has a lien on it of the remaining amount (specified in the note), and called the mortgage. The buyer still has to make the payments as agreed, but let's say the same as above, he goes 15 years into a 20 year deal, improves the place, and then can't pay. 

The holder of the note and deed of trust then forecloses.....they sell the property at public auction. Let's say the buyer HAS turned the 100k place into a 300k place, and 15 years down the road only owes 25k left on the original mortgage of 95k. Let's say the auction brings just 200k (people are always looking for a bargain  ). The mortgage holder gets their 25k (along with whatever legal fees it took in the foreclosure process), and the buyer gets the leftovers.....that is EQUITY.... which a land contract buyer does not have.

Assuming all goes as planed, and the buyer pays back the amount of the note (plus interest along the way, also spelled out in the note), the note holder (bank, or the original owner in the case of owner financing) cancels the note, gives it to the buyer (a NOTE is an actual financial instrument, like a stock or a bond ) and cancels the deed of trust. A release is filed at the courthouse, telling the world the buyer now owns the property free and clear.


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## po boy (Jul 12, 2010)

TnAndy said:


> There are two methods of owner financing.
> 
> *1. Land Contract, or Contract for Deed:
> *
> ...


 That's good info Andy..

I just sold a house in Ga. and owner financed it the same way a traditional lender would. If the borrower defaults, I will have to foreclose the same way any lender would.

OP, Don't let the term deed of trust confuse you. Some states call them Deed to Secure Debt or Security Deed. It's not a new way to finance a property, it's the traditional way and terminology can vary, but means the same thing. It's owner financing the way a lender would.

With owner financed you would want to be sure there are not existing liens on the property. The loan should be closed with a Real Estate Attorney and the title ran.


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## KentuckyDreamer (Jan 20, 2012)

TnAndy and Po boy, thank you for the information. It is so funny all the things I do not know I don't know!


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## TnAndy (Sep 15, 2005)

po boy said:


> With owner financed you would want to be sure there are not existing liens on the property. The loan should be closed with a Real Estate Attorney and the title ran.


Excellent point Po Boy. 

With a contract for deed, nothing is recorded at the courthouse....it's just a contract between two parties. The buyer could have prior liens against the property, or he could (if dishonest) take out a loan using the property as collateral, or any number of other things. The seller could get into tax problems unrelated to the property, and the IRS could file a tax lien (one of their VERY FAVORITE things in the world to file) on the property. The buyer on the other side of the contract probably wouldn't know. So, come the end of the contract, the buyer has made all his payments, and GUESS WHAT....he also owes Uncle Sam for a tax bill that wasn't even his !

What a deal, huh ?

Also, since the property remains in the sellers name, the buyer is highly unlikely to be able to get a loan for building a house, should it be raw land. 

We KNEW that going in on our land purchase, but we had enough money from the sale of our previous house to build the house we live in now (or at least most of it....we finished off enough to make it livable for us)

Using the note/deed of trust, the TITLE to the property transfers to the buyer. An attorney should do a title search, and issue a title opinion stating the property has no prior liens (or revealing them if they are present ), or anything else involving the property (right-of-ways, that kind of thing). Then that same attorney can arrange for title insurance from a company that sells it.

ALWAYS ALWAYS ALWAYS get title insurance.....*with the BUYER as named beneficiary*. Banks ALWAYS get it, but only to cover them, and their loan amount. You pay for it at closing, of course, but it doesn't do much FOR YOU.

You need a policy that covers YOU in case long lost cousin Bubba comes out of the woodwork down the road and claims he didn't get his inheritance from two owners back, and has a claim on the land. 

OR the guy that built that new house didn't pay one of the companies that supplied the materials or labor, so they file a workman's lien right after you bought the place. 

OR that oil 1000gal buried oil tank that used to feed the furnace that later got replaced with a heat pump has been leaking oil for 30 years, and it just surfaced in the creek, and now the State EPA is requiring the tank be dug up, and 5000 cubic yards of soil be hauled out to a decontamination place...final cost 1/2 million bucks.

OR a dozen other things than can, and do, happen. 

Title insurance is cheap...few hundred bucks....because it rarely has to pay off, but when it does, it can be a life saver.


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## ChristieAcres (Apr 11, 2009)

TnAndy said:


> HUNT for someone wanting to sell with owner financing. Run ads in the local paper, run ad on Craig's List. They ARE out there. He simply hasn't found them yet, and *most real estate agents aren't that interested, since it might cause them to have to work.*
> 
> Selling with a good down payment and providing the mortgage holder with much better rate than they could get on a CD is a win-win for both sides.
> 
> ...


Funny, my last Closing was representing a Buyer...the Seller provided Owner Financing :drum:

Unfortunately, there is little Seller Financing offered in my area, except for vacant land.


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## Evons hubby (Oct 3, 2005)

I just closed an owner financed sale this past week. I use a rent/with option to purchase contract for several reasons when I sell property. One is that if I enter a contract for deed it can be recorded and I end up with all sorts of legal issues if the buyer defaults. It happens! If I give the buyer a deed and hold the mortgage its even messier if they default. The legal process can take up to a year to reclaim my property and cost me several thousand dollars. Not only that... in my state I have to pay property tax on the amount of the mortgage held. A deed with mortgage is also very dangerous to me in the event the buyer gets in financial trouble he can end up with liens being put on my property that remain with the property when he defaults. I have sold quite a few properties over the years using the lease with option method and have had a few go sour, as a matter of fact the place I just sold is one. The last "buyer" defaulted and left me with about 12 grand worth of cleanup and repairs to the property. Had I given him a deed and held the mortgage I would most likely still be waiting on the lawyers and judge to get clear title back in my name.


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## Kenny69 (Jul 26, 2015)

Kentucky dreamer how has your son made out?? Was he able to get a mortgage?? If not PM me, my brother does mortgages and works with the 5th largest lender in the country that lends their own money which means they can write deals that most places won't. Good luck,Ken.


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## edcopp (Oct 9, 2004)

I once got a mortgage loan from a Cab Driver. It really does depend on who you ask.

Sometimes it seems that there is a shortage of owner financinng, there is not. There is a shortage of knowledge on the subject.

Ohio is one of the toughest states on "Land Contracts", second only to MD. In Ohio the land contract must go through the forclosure process if: the buyer has 20% equity or if the contract os 5 years old or older

This is an irregular amount of protection for the buyer, caused only by abuse and misuse by the sellers over time. That is one of the reasons that Land Contracts are hard to find.

Land contracts or owner carry back mortgage notes are very profitable for the lender. Just think; how much money can your cash earn in The Bank (1 or 2%) and how much can the interest be on a land contract (25% in Ohio and that is too much).

For example I am a bit of an older fellow (73) a few years ago I sold a rental house to a young fellow on a Land Contract. The house was paid for. I now get a monthly payment from the buyer. I consider this payment to be part of my retirement income.

In 3+ years the purchaser has never even been late with a payment. He is a bit of a tightwad and does not want to pay a late fee. I understand that.

The land contract is a contract between seller and buyer. Almost anything can be agreed to in this contract. Often these contracts are recorded at the court house (required in Ohio). 

Often seller financing is good for everyone involved, just as bank financing is often a money maker for the bank.

Credit scores and credit checks sometimes mean nothing. This is at best another charge that that gets paid for no good reason. Often incorrect too.


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