Less Then 20%-25% Down for Multi Family

[William D.]

BP!

Is there any way around the usual 20 or 25% down payment for multi families?

[Nathan Gesner]

@William D.

It's like an ordinary bank loan but you have to negotiate with the owner on the details.

How much do they want for a down payment?

What interest rate will they charge? Some owners want a higher interest rate than the banks will charge, some match the banks, and others will take a low interest rate.

How long will you amortize the loan? This is how long the loan is spread out. If I use a 30-year amortization, that means the amount I'm borrowing is spread out over 30 years or 360 payments. This is how you determine the amount of your monthly payment.

Will the owner require a balloon payment? A balloon payment is a large payment to pay off the remaining balance.

Here's how it works.

I bought the property for $400,000. The owner required a 10% downpayment, so I gave him $40,000. I had to finance $360,000. We agreed on a loan at 5% interest, amortized for 30 years, with a balloon payment after three years.

Loan amount: $360,000

Interest rate: 5%

Amortized over 30 years equals a payment of $1,933 a month

However, the "balloon payment" is due after three years. After paying $1,933 a month for three years, I'll still have an unpaid balance of $343,000. I will go to a traditional bank and apply for a traditional loan. The bank pays off the balance of $343,000 and then I start making payments to the bank.

Make sense? You can negotiate purchase price, interest rate, amortization length, and balloon payment. There are a lot of options.