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CHAPTER 3
BORROWING AGAINST MONEY
OWED TO YOU
If you have
ever sold a home and there is
money still owed to you, you
have a ready source of cash. As
we mentioned in the first
financing method, a lender
does not want your down payment
to be borrowed; unless it
is borrowed against an asset.
Money owed
you is considered an asset and
if it is secured by a tangible
property, whether a car, house,
or whatever, the note (money
owed to you) can be used as
collateral for a cash loan which
you can then use for your down
payment.
The amount
you can borrow is determined by
mainly three factors.
1) The amount
that is owed you.
2) The amount
that is paid to you monthly
towards the outstanding balance.
3) How much time
is left before the balance owed
you is paid off.
The lender will generally lend
an amount that, if amortized for
the same amount of time that is
left on the
money that is due you, creates a
monthly payment that is equal to
the payment you are receiving.
In other words, let's say
that last year, you sold your
home that was worth $100,000
dollars. The buyer gave you
$5,000 dollars down and assumed
the $60,000 you still owed. You
"carried back" a second mortgage
for $35,000 payable within five
years with interest only
payments of $350 per month.
The lender
would determine the amount he
would lend you as follows:
1. He would
determine that since you sold
the property one year ago, the
loan will be paid off in four
years.
2. He would
take note of the fact that you
are receiving $350 monthly.
3. He would go
to his loan tables to determine
what amount of money $350 would
pay off if amortized over four
years at the current rate of
interest. In this case, we will
assume that their interest rate
is 14%. Upon taking all this
information into consideration,
the lender would write you a
check for $12,806.44.
Now, I know
that chances are that this
section was a little confusing.
But unless you have a
substantial background in
finance that is to be expected.
However, what is important
here, is that you understand
fully, this concept.
If you
have an asset, there is a way to
turn it to cash.
The beauty
of this particular method is
that you can raise the money you
need without liquidating
any of your assets.
Plus, you make the payments on
the money you borrowed, by using
the payments received from the
money you are owed.
Although,
you probably don't have the loan
and finance tables required to
determine exactly the amount
you can borrow with this
method, all you need to do is go
to your nearest bank with the
information on the loan you are
planning to borrow against and
any loan officer can tell you
within about ten minutes exactly
what they can do for you.
See
Chapter 4.
Selling
Money
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