What are the options for seller financing?

Question

Hello everyone,

I currently have a great deal on the table, the seller is asking $300,000, the value is about $450,000 or more.

The house needs roughly $50,000 in external rehab.

I am currently eligible for a 75% mortgage. It would be hard for me to get the 25% down payment + the rehab cost. Is it normal to ask the seller to ask for a 25% seller financing as a second lien on the property?

Does it work this way? Do you have any suggestions on how I should propose it to the seller? Do you know if the mortgage company will have an issue with it that the buyer is not putting down any money? How should I go about it?

Any advise from past experience?

Thanks in advance.

Salomon

David Kelly · Answer

Hi @Salomon,

There may be a loan program available to you that allows you to bring less than 25% down and will allow you to get extra money for the renovations.  The extra money for the renovation is held by the bank and is dispersed to the contractor as needed.  This type of renovation loan however will only allow an approved contractor to do the work (you cannot take any part of the renovation being done).  It works in the way that we have our appraiser go out to the property and give us the "after renovation" value.  The loan is then structured from that value. .  It works similar to a purchase as well.  Will this be your primary residence?  Or will you not be occupying the property?

Doran Summers · Answer

@Salomon W. If you have your own 25% to put down and get owner financing for the deal I don’t see how you couldn’t get a loan. You would most likely need a short term loan then refinance.

Salomon W. · Answer

@Doran Summers

I am still not sure. I may refinance it and hold on to it or just sell it after the fix.

Salomon W. · Answer

@Hai Loc

Good Idea. I'll talk to some lawyers to see about it. Thanks

Doran Summers · Answer

@Salomon W. Do you plan to hold this property or flip?

Hai Loc · Answer

@Salomon W.

I have never done this but for what you are thinking you can try to do a double close

First of all I don't think when the lender closes that there can be a second lien with the seller

What I m suggesting is you close with the lender with you full downpayment and simultaneously or right after close with the seller with the funds given back to you as a form of a second lien/mortgage..  you need a good attorney or title company to do this

Good luck

Salomon W. · Answer

Thank you for your input.

So, can I have the $50,000 of the $75,000 (25% of house cost) down payment be held by the seller in an escrow account to be used for rehab. So, it would basically mean that the seller is financing $50,000. This way, the mortgage lender would see that 25% is been put down by the buyer. Does it make sense what I am saying? Just trying to learn.

Thanks.

Hai Loc · Answer

Its highly unlikely for a lender to loan with the borrower not to have any skin in the game.

Raise money from investors to fund the downpayment