Is it possible to purchase a property via a land contract and then refinance it, avoiding a downpayment.

This would be a tenant occupied 2nd home. The seller wants out anyway possible and will agree to any legal plan.

Any ideas?

Usually it is if the Land Contract is recorded and seasoned 12 months. It is important to also show a paper trail evidencing payments were made such as canceled checks. A simple letter from the seller stating payments were made on time will not suffice due to them having interest in the transaction.

After the 12 months some lenders allow you to use the full appraised value of the property but in today's market the availability of this option has become much more limited than in the past.

Doing it as a 2nd home may even be more difficult and likely void the opportunity.

Thanks for the information Greg. I now have more questions to ask when I talk to my lender again.

I currently rent the home next to my own home for my disabled mother. The owner would prefer to sell the property to me. So it isn't a true investment property but the bank won't care. She does have income to pay the rent and I would keep a lease in place.

I was aware that I would need some equity, around %10.

Just remember this too. When you do a lease on a home you can use the lease as income but as soon as you hit tax time and file a return you only can use the income claimed minus expenses on the return for the property as income. The gross rent will not be used. Then they will ding you with what is called a vacancy factor. Whatever the amount of rent used will be subject to a 25% vacancy factor. This means they will use 75% of the amount you can show.

So, an example:

I rent my home to my momma for 1000. If I have rented it less than 12 months the lender will usually use the lease. They will use 750 to offset your mortgage expense (75%) Well, if you filed taxes then you use the return to show how much money you can use.

You can also apply for a mortgage with your mom as borrower and you as co-borrower. This is not a second home or investment property. It will be a owner occ. mortgage in your and your moms name and will allow you to supplement her income and credit for loan qualification purposes. non -occupying co-borrower is the term your looking to use for your self. The loan officer should know how to fill the 1003 properly to reflect this fact and then properly document for underwriting.

It's true. FHA is a great loan for doing this.

i know this is old however, i have a letter that we can give to the lender stating that the homeowner has their property inside of their own land trust and the tenant is under a triple net lease agreement. this means the lender would give a "rent to income credit of 100%" and their debt to income would be significantly reduced since the homeowner should be getting cash flow.

the homeowner now can qualify for another loan much more easily since the tenant is responsible for the principal, interest, taxes, insurance, hoa, maintenance, management and repairs.

there's no negative cashflow, and the vacancy factor has been reduced since we would tell the tenant to put up 3 full payments of PITI along with 3-5% of the value of the property in exchange for tax write offs while leasing, without being on title, and without being on the loan per the IRS code that i have. the tenant/buyer has enough skin in the game that it mitigates the vacancy risk factor.

i can structure it to simulate a land contract but with better protection and better incentives to both the homeowner and tenant/buyer

the risk with doing a land contract is that the homeowner would take a down payment and probably apply it to the purchase price. if the buyer inside of this land contract happens to default, the homeowner would have to go through a foreclosure proceeding and a quiet title action to remove the buyer from the property and the homeowner's title.

one thing is don't call it a down payment because that means there's a sale taking place. closing costs is more ideal because that can mean anything you want it to be.

second thing is to never apply a down payment or a option/consideration fee to a purchase price because you're giving instant equity to a buyer to claim upon defaulting

there are other risks involved but these are the main two that should be mitigated when doing land contracts.

there are better ways to structure a land contract without these risks and pitfalls.