Mortgages
July 19th, 2008 by Alan Cowgill
Everytime I speak I get ask…
“What if I need more money to buy and fix the house than I can
get from one private lender?”
This is the #1 question I get. The answer is easy and I see
light bulbs go on as soon as they hear the answer.
Look, you can NOT pool your lenders money. It is an SEC
violation. What you can do is create mortgages. And you can
create as many as you need to.
The lender with the bigger chunk of money gets the 1st
mortgage and the 2nd chunk of money gets the 2nd mortgage.
And so on.
Now for some of you folks we need to discuss some of the
terminology…
I’ve seen some real estate investors just zone out when we
talk about:
- Mortgage
- Mortgagor and Mortgagee
- First mortgage and Second mortgage
Well let’s clear up the mystery right now.
- Mortgage
When you get a loan from your private lender to purchase a
house, the document that says you will repay the loan is the
mortgage. A mortgage creates a legal claim (or lien) on the
property until the debt is paid. Please consult your
attorney if you have questions about what that legal claim
involves.
The name of your private lender is on the mortgage. It is a
protection for your lenders that reassures them that you are
going to pay as agreed.
Once the debt is paid, there is no longer a mortgage on the
property.
- Mortgagor and mortgagee
The person who borrows the money is the mortgagor. The private
lender or the bank is the mortgagee.
- First mortgage and second mortgage
The first mortgage is the document that creates a lien that is
in the first position. This means that in the case of a
foreclosure, the money from the sale of the property will be
used to pay taxes and fees, then whatever is left goes to pay
the first mortgage.
The second mortgage is a lien in the second position. If after
paying taxes, fees, and the first mortgage there is money left
over, it goes to pay the second mortgage.
As you can see, it is much better to hold the first mortgage
rather than the second.
Some private lenders have a great deal of money available to
loan. My criteria for a private lender to hold a first
mortgage is that they lend more than $25,000. Lenders with
less than $24,000 can generally only hold a second mortgage. I
do not accept loans of less that $5,000 simply because of the
paperwork involved.
An example of the way this works is that one private lender
will have $25,000 they want to loan so I purchase the property
with their money. They hold the first mortgage. Another
lender will only have $6,000 but that is just what is needed
to fix the roof, repair and paint the place to get it ready
to rent or sell. That second lender will hold the second
mortgage.
You can have as many liens on a property as you want. Just
stay under 70% LTV so your lender is secure.
See, that wasn’t so hard!
Alan Cowgill is a speaker, author, and real estate entrepreneur. Alan has bought or sold over 200 investment properties. His step-by-step system “Private Lending Made Easy” teaches others to find private lenders. Contact Alan at 937-390-0816 or 866-831-3540. For a FREE audio go to www.PrivateLendingMadeEasy.com
Alan Cowgill's Private Lending Made Easy offers detailed information, advice and professional-quality products related to "Mortgages", Private Money Lending and Real Estate Investing.