I found an off market deal with a retiring landlord who is starting to sell off their properties. One of the packages they are offering me is two properties (5 unit and 4 unit) for 1 million dollars total. In my area this is a great deal and I do not want to pass this up. They mentioned they would be open to seller financing if interested and I have to provide my terms in the offer. I don't have a lot of cash right now so getting a conventional loan on the properties would be difficult and I'd like to avoid partnering with someone if possible. My plan with seller financing would be to only put something small like 5% down and then finance the rest through the seller. My questions are for the people who have had experience doing a deal with seller financing.
1. In a seller financed deal is 5% or lower down payment common? I understand it all comes down to the seller accepting this but if 10% is more common and would help me get this deal I can maybe stretch to a 10% down payment.
2. How do you come up with an interest rate, in my research I found that the interest rate is normally higher than regular 30 year fixed rates but is there a general rule of thumb on how you come up with this?
3. I've read a lot about seller financing with a balloon payment after a period of time (5, 7, 10, 15 years) and that most people refinance before that to get rid of the balloon payment. In this scenario when you refinance do you go through the normal process of refinancing where a bank would look at your loan terms/house appraisal and decide if they want to take it on? Is there any difficulties in refinancing before the balloon payment that anyone has experienced or foresees? The big one I can see is if the market crashes and the appraisal value is far less it might make it hard to find a lender.
4. If I did only do 5% down or even 10% down when I purchase the home will a lender require any additional funds when I refinance or do they only look at what I owe on the home and what the appraisal value is? I wouldn't want to run into an issue when I refinance where I would have to throw more cash down. This seems unlikely but just wanted to check all my boxes.
If anyone has any insight or experience with any of my questions I would be very grateful to hear your response. Thanks
A lender will lend based on appraisal value. If that value gives you enough equity then you don’t need more money down.
I think most seller financed deals have an interest rate 1-2 percent above 30 year fixed. Percent down can probably be anywhere from 10-25 percent. I have a feeling 5 percent down would be very hard to get someone to accept. Unless the seller is extremely motivated would you do that deal yourself? I certainly wouldn’t.
If I was selling you this, as the seller, I’d ask for 20-25 percent down, 6-7 percent interest and amortization of 25 years with a 1-3 year balloon.
I have tried to do it (unsuccessfully) but the beauty is you can offer whatever you like. I have read stories on here where people offer above the asking price, but the debt service is 100% principal payments. What I do is make multiple offers: An offer based on seller financing for 5 years, 10 years or 15 years. That gives you can idea of how long they want to hold the paper for. Then go from there. Start low and see what happens. The key is to explain to them that they will make more money by acting as the bank.
I realize this question is a little old, but I’m interested in how the deal turned out. Did you find a structure that worked for both parties?