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The seller passed away and the property is now in a trust,they have agreed  to accept a $75000 payoff on $100000 balance, How should we approach this?
asked Nov 22, 2018 in Refinancing by sam
edited Nov 23, 2018 by GinaPogol

1 Answer

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Hello, and thank you for writing.

If I get your question correctly, you are currently paying on a land contract, and the seller (the trust) is willing to discount the remaining balance by $25,000 if you can pay $75,000 now. (A land contract is another way of saying a real estate purchase with seller financing.)

The way the payoff works depends on how long you have had your land purchase. Fannie Mae guidelines state that, "When the proceeds of a mortgage loan are used to pay off the outstanding balance on an installment land contract (also known as contract or bond for deed) that was executed within the 12 months preceding the date of the loan application, Fannie Mae will consider the mortgage loan to be a purchase money mortgage loan."

Otherwise, it's considered a refinance. Per Fannie Mae: "When the installment land contract was executed more than 12 months before the date of the loan application, Fannie Mae will consider the mortgage loan to be a limited cash-out refinance. In this case, the LTV ratio for the mortgage loan must be determined by dividing the new loan amount by the appraised value of the property at the time the new mortgage loan is closed."

So you can pay off your contract with a new mortgage, and it will be treated as a purchase or refinance. Fannie Mae loans are very common, can be underwritten electronically and you'll have a decision in minutes.

You'll need to document the amount that you have put down (purchase) or the amount of equity you have (refinance). The home must be appraised. Your credit and income must meet the lender's guidelines. It's really no different from a normal mortgage.
answered Nov 23, 2018 by GinaPogol (47,650 points)

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