2nd mortgage as downpayment?

[DavidHamilton]

Looking for your thoughts on this...

I have a private lender interested in providing investment funds in the form of a second mortgage on investment properties.

The idea is that I locate, purchase and manage the investment property. He provides the downpayment, but instead of being an equity partner, he simply wants to lend the downpayment funds to me in the form of a 2nd.


How can this work with securing a first mortgage from an institutional lender?

thanks in advance for your thoughts/advice,

Dave

 

[bizaro86]

QUOTE (DavidHamilton @ Oct 25 2010, 05:00 AM) Looking for your thoughts on this...

I have a private lender interested in providing investment funds in the form of a second mortgage on investment properties.

The idea is that I locate, purchase and manage the investment property. He provides the downpayment, but instead of being an equity partner, he simply wants to lend the downpayment funds to me in the form of a 2nd.


How can this work with securing a first mortgage from an institutional lender?

thanks in advance for your thoughts/advice,

Dave

Could you secure the second on a different investment property? For example, if you already own "Property A" at 70% LTV, and your partner is willing to lend to you up to 90% LTV, you could borrow 20% of the value of the property, secured by a 2nd mortgage on "Property A." Then, you take that money and use it as a 20% downpayment on "Property B," assuming they are of approximately equal value.

Michael

 

[RobMacdonald]

Two things need to fall into place for this to work. First, you have to find a lender that is okay with a portion of the downpayment coming from borrowed sources. There`s only a few lenders that will allow this on a rental property. Second, you would have to bring about 10% of your own funds into the application.

If you have room in a HELOC, or savings to prove you have 10% of your own funds available, you may be able to get the financing.

 

[DavidHamilton]

QUOTE (bizaro86 @ Oct 25 2010, 10:37 AM) Could you secure the second on a different investment property? For example, if you already own "Property A" at 70% LTV, and your partner is willing to lend to you up to 90% LTV, you could borrow 20% of the value of the property, secured by a 2nd mortgage on "Property A." Then, you take that money and use it as a 20% downpayment on "Property B," assuming they are of approximately equal value.

Michael

Interesting, that could work as I have several other rental properties at various stages of maturity.

 

[bizaro86]

QUOTE (RobMacdonald @ Oct 25 2010, 08:56 AM) Two things need to fall into place for this to work. First, you have to find a lender that is okay with a portion of the downpayment coming from borrowed sources. There`s only a few lenders that will allow this on a rental property. Second, you would have to bring about 10% of your own funds into the application.

If you have room in a HELOC, or savings to prove you have 10% of your own funds available, you may be able to get the financing.

Is a HELOC looked at differently than a second mortgage on a property? It seems like they`re exactly the same to me, but it doesn`t matter what I think, only what the bank thinks.

If that`s an issue, surely the money could go into a 90 day GIC or savings account, and then the source of the funds could be a "maturing GIC." Of course one would disclose the existence of the 2nd on the first property, and would still have to qualify with that higher debt service.

Michael

 

[DavidHamilton]

QUOTE (bizaro86 @ Oct 25 2010, 11:17 AM) Is a HELOC looked at differently than a second mortgage on a property? It seems like they`re exactly the same to me, but it doesn`t matter what I think, only what the bank thinks.

If that`s an issue, surely the money could go into a 90 day GIC or savings account, and then the source of the funds could be a "maturing GIC." Of course one would disclose the existence of the 2nd on the first property, and would still have to qualify with that higher debt service.

Michael

Michael, I asked the same question of my broker. His response was that it depends on the alignment of the moon and stars. In other words, some days a HELOC is fine, and other days it`s not. I`ve used my HELOC before for downpayments and I`ve had no issue with that.