Can I get a bank loan and use seller financing for the down payment?

6 Replies

Triplex Scenario ( 3 x 1 bedroom units near military base) 

Purchase price - $135,000

Gross monthly rent - $1,650 

Was recently rehabbed and is turn key with all 3 units currently rented. Seller wants to pull out cash to use on another project and is willing to finance the remainder with $100k down. Can I use his seller finance offer for the down payment and get a traditional loan on the $100k? I also have funds available in a HELOC and IRA accounts that I can use as down payment to close on the deal, but I would like to take advantage of the seller's offer if it can be used as a down payment method. Possible? if so how do you structure it to get approved with the bank?

@Joshua Massari

While it is possible to use retirement funds to invest in real estate, based on your description this will not be possible in your case. My understanding is that you are trying to purchase this property in your name, in this case you are prohibited from using IRA funds for down-payment.

You could set-up a self-directed IRA and buy property in the name of the IRA, then if you have enough funds to cover the down-payment and can utilize seller financing it could work. The loan however must be non-recourse, you are prohibited from providing personal guarantee when financing property in your IRA. Check with the seller if they are willing to do that.

Also, when you buy property in your IRA you will not be able to use income personally - it has to go back into your IRA, tax-deferred, which is a good thing. But at the same time there are no tax benefits such as depreciation deduction if you buy using tax-deferred account.

Dmitriy Fomichenko, Broker
(949) 228-9393

@Dmitriy Fomichenko - Thank you for the response. I think you mis understood what I am actually trying to ask here. I am very well aware of how SDIRA funds can and cannot be used, I am actually in the process of rolling over one of my IRA accouns into a SDIRA for the purpose of investing in real estate and growing the capital inside the tax deferred account. I would merely be pulling out the down payment and retuning it to the account within 60 days ( allowed once every 12 months with no penalty or tax implications) in order to close on the loan. I don't have to use the IRA funds, it's just one of my options. My real question is whether or not I can use the seller financing for the down payment portion so I don't have my own cash in the deal. My own cash wouldd be used if the banks required me put into the deal on the front end. And is there a way to structure the deal without having to put my cash into the deal at all?

@Joshua Massari

you didn't mention anything in your original post about 60-days rollover and I can't read your mind so that is why I answered based on what I read. 

I would strongly advise you against this strategy for two reasons:

  • The purpose of 60-days rollover is the rollover to another qualified plan. And that is not your intent. It's not illegal to do it, but in a way it's unethical (this is my opinion, that is how I personally see it)
  • Second, there is a strong chance you may not get the cash to put back into your retirement account in 60 days. And if you miss the deadline by one day - you will be taxed and penalized on the entire amount.

Look into other possibilities, I think using HELOC would be much safer.

Dmitriy Fomichenko, Broker
(949) 228-9393

You seller understands that their not would be in second position?

This used to be done frequently, up to about 95%.  Haven't heard of it much lately.

I am going to start this post over again as I was not very clear in my question and did not intend to bring the IRA regulations into the discussion.

Triplex Scenario ( 3 x 1 bedroom units near military base)

Purchase price - $135,000

Gross monthly rent - $1,650

Was recently rehabbed and is turn key with all 3 units currently rented. Seller wants to pull out cash to use on another project and is willing to finance the remainder with $100k down. Can I use his seller finance offer for the down payment and get a traditional loan on the $100k? I also have cash funds available that I can use as down payment to close on the deal, but I would like to take advantage of the seller's offer if it can be used as a down payment method. Thus pulling my cash back out of the deal or never putting it on the table in the first place.  Is it possible? if so how do you structure it to get approved with the bank? 

@Richard C. - I have not presented this to the seller yet and would be completely transparent with him as he would have to know what is going on and be ok as a 2nd position lien holder. 

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