This thread is aimed towards those looking for a grow house, and don't have the down payment, or can not qualify for a normal mortgage
There have been several threads on house buying/rental so I decided to write an article on how to buy a house with little money down and easy/no qualifying. These are not techniques that you see on late night TV. These are techniques that are used by investors every day around the USA and that I have used. I am not sure how these techniques will work in other countries.
First thing I would like to clear up is the seizure of this house. The lien holder on any property whether it be a house, car, boat, building etc trumps LEO. Nobody can seize this house if there is a mortgage. If there is enough equity, they can pay it off, and sell it or keep it if they have some use for it. But it better have A LOT of equity, like 60-70%.
I am not going to lie and say this is super easy. Finding houses and owners that will fit the bill is no easy task. It takes a lot of work, and you have to play the part of a real estate investor. This means driving around looking at properties, talking to homeowners, and sensitive financial with them. You are buying properties that homeowners can not make payments due to job loss, divorce, etc.
There are two parts to this, how to finance, and how to take ownership. There is one thing to remember, real estate is different than cars. When you finance a car, the bank holds the title until paid off. In real estate, the property is titled to you, and the bank has a lien.
The easiest way to find a house with little money down and easy qualifying is to find an owner offering owner financing. These properties can be found on CraigsList, the local paper, and other sites where homes are being sold. Typically this is an investor who has obtained a property through the methods I will describe later. Typically, they want a few thousand down. Qualifying terms can vary, some may just require a job, some may check credit, etc. But the process will nowhere be near what a bank will require. The only thing to watch out for is to make sure the property is not foreclosed on after you buy it. Typically this investor will not own the property outright and there will be a 1st and maybe a 2nd mortgage on the property. You can check public records and see which banks hold a lien. If you are unfamiliar with this, I suggest you find a lawyer who can help with this. Actually you need a lawyer regardless to do the closing. Do not close w/o an attorney. You want to make sure the banks get paid and do not foreclose on the property even though you made payments to the seller. Supposedly www.realtytrac.com is a good source to find if payments are being made.
The second option is to go directly to the source and buy the house from a homeowner. This is not an easy task and can take some work. It may be close to finding a needle in a haystack. There is a lot to this, so let me start with the basics. You need a homeowner who is willing to sign their house over to you. They sell the house to you, but the mortgage stays in their name. This is called “Subject 2”. The term comes from a term on the purchase agreement where financing is covered. The term Subject 2 is short for Subject to existing financing. It basically means you are taking over the existing financing.
Due on sale
The due on sale clause is a clause in almost every mortgage agreement that states that if the property is sold or ownership is transferred, the loan CAN (it does not say MUST) be called. Trust me, banks do not foreclose on performing mortgages. If the payments are made they will not foreclose. The bank does NOT want the house back. By using a land trust, you can avoid this risk 100% and I explain this later. Transfer to land trusts are protected under federal law
First step is to find a lawyer that can draw up the paperwork. They will check to make sure the liens on the property match up with what the seller tells you. They will calculate a sales price based on the payoff, and close the property without much hassle.
First step, find a house.
This is straight marketing. You want to find a house that the sellers cannot or do not want to make payments on. A retired couple selling their 5/3 because they don’t want to deal with the property size or because the kids are in college and plan on downgrading to a condo, is not the seller you want. You want the seller who lost their job, bought another house (making payments on 2 houses), got divorced, etc. You want people who will do anything to get rid of the house and are going to get foreclosed on, or have foreclosure already started.
Finding people before foreclosure has started is the best method but the hardest. The advantage is these owners may be current or not too far behind in their mortgage. Putting ads on craigslist, local message boards, and bandit signs is a good start. Basically you want everyone to know you buy houses.
Next you target people who already have foreclosure started. This is pretty easy, but not as ideal as finding them before foreclosure starts. These sellers are definitely behind in their mortgage and it is going to take some money to keep the bank happy. You can stop foreclosure by paying the arrears any point before the sale. Hopefully you can work something out and make a payment arrangement. You would need the seller to help you.
In some states, foreclosure is judicial, which in short means they have to sue the owner. This process takes several months and the owner can drag this out. This means you have plenty of time to contact the owner, work something out and take over the property. Finding them is easy as well because once the lender files the suit, it is public record. In major metro areas, there are companies who compile this info and make it available in easy to use downloads, database files etc for a fee. Anybody can buy these. Also the county may make a monthly report as well.
In other states, foreclosure is non judicial, which means it never goes through the court, no judge is assigned etc. In my state it is a very fast process. Once the mortgage is 30+ days past due, the lender can start to foreclose. All they have to do is make a public notice for 4 weeks in the local paper, and it gets sold on the first XX of the month. It is always the same day, just cant remember which day it is. In California, the process seems to be non judicial as well, but the timeline is much more lengthy as they have some steps and timetables to follow. In my area, the only way to find out about the upcoming foreclosures is to find them in the paper. Remember the bank is only required to put notice in the paper, nothing goes through the court. Luckily a company here gets all this data and makes it available online, and cross references it to public records and gets tax values, and other pieces of info. Now you would mail postcards or letters to all these people. You could also target certain homes and visit in person. Yes knock on the door and tell them why you are there. This is not for the weak, it takes balls to knock on doors and tell them you want to buy their house before it gets foreclosed on. The timetable is short in areas like mine so you have to have all your ducks in a row, have your atty setup, etc. You only have 3-4 weeks max to do title search, verify arrears (banks can drag their feet especially when in foreclosure), etc.
So now you have people calling you
You introduce yourself as an investor and you tell them you buy houses. You schedule to come out and look at the house. You need to be respectful but professional. It will come up why they are loosing the house. I have heard it all, divorce, job loss, etc. As an investor you are making a business decision so taking a good look at the structure, electrical, plumbing is completely normal. So now basically you tell them you want to buy the house and will take over their payments. You explain to them that with no equity, you can not get a loan or the cost of the loan would kill any profit. Why would they do that?? You explain to them its obvious if they don’t sell, they will get foreclosed, and will have a foreclosure on their record. By allowing you to take over payments, you will prevent the foreclosure from hitting their credit, and even help their credit by making on time payments. You can also offer cash to help them move, etc. Remember you are talking to people who are loosing their house and are broke. Some will ask what your plan is. You can tell them you plan on renting it, selling it via owner financing etc and that you have a waiting list. The first thing you will do is find out all the financials, how much is owed, to who, how much past due etc. For me balance was not an issue. Monthly payment and past due amount was key. Could I catch up the mortgage and make the monthly payment. Remember to play the part of an investor who would want to know the total amount owed
What will happen is at closing, you will own the property, and the seller has no recourse. They have no legal right to be on the property, enter etc. Done deal. BUT the mortgage is in their name and they are still on the hook for the mortgage. The bank has no idea ownership changed. You did have to submit a credit application, proof of income, nada. You will have to pay the arrears or work out a payment plan with the bank. But be prepared to pay the full arrears. When the house is in the foreclosure process a lawyer handles it. At this point you have to talk to the law firm because they now represent the bank. They have to request financials, amount to stop foreclosure etc from the bank. Most of these firms are huge mills handling hundreds or thousands of files. Customer service and speediness is not a priority. It can be like pulling teeth. If the bank asks, you can tell them you are the property manager or are handling the affairs on the house. You will have a permission form on file that allows you to discuss the account. The only thing you cant do is modify the actual loan agreement
There are several things that need to be done to make this transaction work properly. I have read 200 page guides on doing these deals and I certainly cannot cover every detail. This is meant as a very basic guide and to help you start doing your own research.
You don’t want to tell the bank the property was sold. While I am confident they wont enforce the due on sale clause, no need to rub it in their face. You need to be listed as a contact on the mortgage so you can talk to them about payments, etc. There will be escrows funds that when you sell the property need to be disbursed and you want to get those. You need to be able to change the mailing address, insurance, etc
There are several guides online that can help you. I suggest you google “ the biker who buys houses” he has a good guide and he is a real investor. I also suggest you google real estate investment forums.
You will need an attorney who can handle this. Some attorneys are not investor orientated and are familiar with these type of transactions. Try finding a local REI club.
The pros to this are easy terms, no qualifying, no proof of income, no risk.
The cons are the amount of work and time involved to finding a house and making it work. Also you are buying the house for what is owed which in this market can be significantly higher than market value. You could always short sell the house later on to another party but that would require normal financing, cash etc.
How to take ownership
Land trusts
I am going to admit I am not that familiar with these and have never used one. The concept is pretty simple. A land trust is a trust that holds property. As far as I know there is no public database that states who owns a trust. For example businesses such as LLC’s, corporations, etc are listed with the state and you can see who the owner is.
You buy a house on 123 main street from the Browns. You name the trust 123 main street or Brown Family trust. You put the house in the trust. At closing you transfer control of the trust from the Browns to yourself. When the bank sees it, they just think it is a family trust. They CANNOT find out who controls it w/o a subpoena or court order which they have no basis for. A bank can NOT enforce the due on sale clause when the house is put in a trust, it is protected under federal law. See the genius there?
The real advantage is when owning multiple houses, if one gets popped, LEO can search public records all they want but they wont know you have other houses
Utilities should be in the name of the trust or a business. Each property would have its own trust and/or business name for utilities. The business should have a registered agent. That way public records search wont show any businesses owned by you. Of course if they know the business name, they can find out who owns it.
I would also suggest using one attorney per house/trust/business. Sneaky LEO could find out the lawyer and see what other transactions they performed for you
There have been several threads on house buying/rental so I decided to write an article on how to buy a house with little money down and easy/no qualifying. These are not techniques that you see on late night TV. These are techniques that are used by investors every day around the USA and that I have used. I am not sure how these techniques will work in other countries.
First thing I would like to clear up is the seizure of this house. The lien holder on any property whether it be a house, car, boat, building etc trumps LEO. Nobody can seize this house if there is a mortgage. If there is enough equity, they can pay it off, and sell it or keep it if they have some use for it. But it better have A LOT of equity, like 60-70%.
I am not going to lie and say this is super easy. Finding houses and owners that will fit the bill is no easy task. It takes a lot of work, and you have to play the part of a real estate investor. This means driving around looking at properties, talking to homeowners, and sensitive financial with them. You are buying properties that homeowners can not make payments due to job loss, divorce, etc.
There are two parts to this, how to finance, and how to take ownership. There is one thing to remember, real estate is different than cars. When you finance a car, the bank holds the title until paid off. In real estate, the property is titled to you, and the bank has a lien.
The easiest way to find a house with little money down and easy qualifying is to find an owner offering owner financing. These properties can be found on CraigsList, the local paper, and other sites where homes are being sold. Typically this is an investor who has obtained a property through the methods I will describe later. Typically, they want a few thousand down. Qualifying terms can vary, some may just require a job, some may check credit, etc. But the process will nowhere be near what a bank will require. The only thing to watch out for is to make sure the property is not foreclosed on after you buy it. Typically this investor will not own the property outright and there will be a 1st and maybe a 2nd mortgage on the property. You can check public records and see which banks hold a lien. If you are unfamiliar with this, I suggest you find a lawyer who can help with this. Actually you need a lawyer regardless to do the closing. Do not close w/o an attorney. You want to make sure the banks get paid and do not foreclose on the property even though you made payments to the seller. Supposedly www.realtytrac.com is a good source to find if payments are being made.
The second option is to go directly to the source and buy the house from a homeowner. This is not an easy task and can take some work. It may be close to finding a needle in a haystack. There is a lot to this, so let me start with the basics. You need a homeowner who is willing to sign their house over to you. They sell the house to you, but the mortgage stays in their name. This is called “Subject 2”. The term comes from a term on the purchase agreement where financing is covered. The term Subject 2 is short for Subject to existing financing. It basically means you are taking over the existing financing.
Due on sale
The due on sale clause is a clause in almost every mortgage agreement that states that if the property is sold or ownership is transferred, the loan CAN (it does not say MUST) be called. Trust me, banks do not foreclose on performing mortgages. If the payments are made they will not foreclose. The bank does NOT want the house back. By using a land trust, you can avoid this risk 100% and I explain this later. Transfer to land trusts are protected under federal law
First step is to find a lawyer that can draw up the paperwork. They will check to make sure the liens on the property match up with what the seller tells you. They will calculate a sales price based on the payoff, and close the property without much hassle.
First step, find a house.
This is straight marketing. You want to find a house that the sellers cannot or do not want to make payments on. A retired couple selling their 5/3 because they don’t want to deal with the property size or because the kids are in college and plan on downgrading to a condo, is not the seller you want. You want the seller who lost their job, bought another house (making payments on 2 houses), got divorced, etc. You want people who will do anything to get rid of the house and are going to get foreclosed on, or have foreclosure already started.
Finding people before foreclosure has started is the best method but the hardest. The advantage is these owners may be current or not too far behind in their mortgage. Putting ads on craigslist, local message boards, and bandit signs is a good start. Basically you want everyone to know you buy houses.
Next you target people who already have foreclosure started. This is pretty easy, but not as ideal as finding them before foreclosure starts. These sellers are definitely behind in their mortgage and it is going to take some money to keep the bank happy. You can stop foreclosure by paying the arrears any point before the sale. Hopefully you can work something out and make a payment arrangement. You would need the seller to help you.
In some states, foreclosure is judicial, which in short means they have to sue the owner. This process takes several months and the owner can drag this out. This means you have plenty of time to contact the owner, work something out and take over the property. Finding them is easy as well because once the lender files the suit, it is public record. In major metro areas, there are companies who compile this info and make it available in easy to use downloads, database files etc for a fee. Anybody can buy these. Also the county may make a monthly report as well.
In other states, foreclosure is non judicial, which means it never goes through the court, no judge is assigned etc. In my state it is a very fast process. Once the mortgage is 30+ days past due, the lender can start to foreclose. All they have to do is make a public notice for 4 weeks in the local paper, and it gets sold on the first XX of the month. It is always the same day, just cant remember which day it is. In California, the process seems to be non judicial as well, but the timeline is much more lengthy as they have some steps and timetables to follow. In my area, the only way to find out about the upcoming foreclosures is to find them in the paper. Remember the bank is only required to put notice in the paper, nothing goes through the court. Luckily a company here gets all this data and makes it available online, and cross references it to public records and gets tax values, and other pieces of info. Now you would mail postcards or letters to all these people. You could also target certain homes and visit in person. Yes knock on the door and tell them why you are there. This is not for the weak, it takes balls to knock on doors and tell them you want to buy their house before it gets foreclosed on. The timetable is short in areas like mine so you have to have all your ducks in a row, have your atty setup, etc. You only have 3-4 weeks max to do title search, verify arrears (banks can drag their feet especially when in foreclosure), etc.
So now you have people calling you
You introduce yourself as an investor and you tell them you buy houses. You schedule to come out and look at the house. You need to be respectful but professional. It will come up why they are loosing the house. I have heard it all, divorce, job loss, etc. As an investor you are making a business decision so taking a good look at the structure, electrical, plumbing is completely normal. So now basically you tell them you want to buy the house and will take over their payments. You explain to them that with no equity, you can not get a loan or the cost of the loan would kill any profit. Why would they do that?? You explain to them its obvious if they don’t sell, they will get foreclosed, and will have a foreclosure on their record. By allowing you to take over payments, you will prevent the foreclosure from hitting their credit, and even help their credit by making on time payments. You can also offer cash to help them move, etc. Remember you are talking to people who are loosing their house and are broke. Some will ask what your plan is. You can tell them you plan on renting it, selling it via owner financing etc and that you have a waiting list. The first thing you will do is find out all the financials, how much is owed, to who, how much past due etc. For me balance was not an issue. Monthly payment and past due amount was key. Could I catch up the mortgage and make the monthly payment. Remember to play the part of an investor who would want to know the total amount owed
What will happen is at closing, you will own the property, and the seller has no recourse. They have no legal right to be on the property, enter etc. Done deal. BUT the mortgage is in their name and they are still on the hook for the mortgage. The bank has no idea ownership changed. You did have to submit a credit application, proof of income, nada. You will have to pay the arrears or work out a payment plan with the bank. But be prepared to pay the full arrears. When the house is in the foreclosure process a lawyer handles it. At this point you have to talk to the law firm because they now represent the bank. They have to request financials, amount to stop foreclosure etc from the bank. Most of these firms are huge mills handling hundreds or thousands of files. Customer service and speediness is not a priority. It can be like pulling teeth. If the bank asks, you can tell them you are the property manager or are handling the affairs on the house. You will have a permission form on file that allows you to discuss the account. The only thing you cant do is modify the actual loan agreement
There are several things that need to be done to make this transaction work properly. I have read 200 page guides on doing these deals and I certainly cannot cover every detail. This is meant as a very basic guide and to help you start doing your own research.
You don’t want to tell the bank the property was sold. While I am confident they wont enforce the due on sale clause, no need to rub it in their face. You need to be listed as a contact on the mortgage so you can talk to them about payments, etc. There will be escrows funds that when you sell the property need to be disbursed and you want to get those. You need to be able to change the mailing address, insurance, etc
There are several guides online that can help you. I suggest you google “ the biker who buys houses” he has a good guide and he is a real investor. I also suggest you google real estate investment forums.
You will need an attorney who can handle this. Some attorneys are not investor orientated and are familiar with these type of transactions. Try finding a local REI club.
The pros to this are easy terms, no qualifying, no proof of income, no risk.
The cons are the amount of work and time involved to finding a house and making it work. Also you are buying the house for what is owed which in this market can be significantly higher than market value. You could always short sell the house later on to another party but that would require normal financing, cash etc.
How to take ownership
Land trusts
I am going to admit I am not that familiar with these and have never used one. The concept is pretty simple. A land trust is a trust that holds property. As far as I know there is no public database that states who owns a trust. For example businesses such as LLC’s, corporations, etc are listed with the state and you can see who the owner is.
You buy a house on 123 main street from the Browns. You name the trust 123 main street or Brown Family trust. You put the house in the trust. At closing you transfer control of the trust from the Browns to yourself. When the bank sees it, they just think it is a family trust. They CANNOT find out who controls it w/o a subpoena or court order which they have no basis for. A bank can NOT enforce the due on sale clause when the house is put in a trust, it is protected under federal law. See the genius there?
The real advantage is when owning multiple houses, if one gets popped, LEO can search public records all they want but they wont know you have other houses
Utilities should be in the name of the trust or a business. Each property would have its own trust and/or business name for utilities. The business should have a registered agent. That way public records search wont show any businesses owned by you. Of course if they know the business name, they can find out who owns it.
I would also suggest using one attorney per house/trust/business. Sneaky LEO could find out the lawyer and see what other transactions they performed for you
