Seller Paying Downpayment?

12 Replies

A 4 flat near me is selling for $240,000. This is unfortunately just outside my capabilities of a down payment as my lending is requiring a 25% DP. At $200,000 I think i can make it work and I think the seller would budge to that as its been for sale for over 200 days and he purchased it for 88k in 2012. I then quickly thought, what if I could get the seller to put down most of my down payment for me. Would this be essentially a seller credit? Would I still need to have the funds for the total deal on my end and then recoup them in the form of seller credits after the transfer of the property? I would offer him maybe $250k in exchange for say $35k down payment assistance/seller credit (whatever the correct term may be). Am I far off from what I am trying to think of and what issues can you foresee. I would not have enough to proceed with a down payment for $250k so that is why I am hoping seller credit can be applied to my loan.

last I heard:

A conventional loan, for example, will allow up to 9% seller concessions for loans with a loan-to-value (LTV) of 75% or less; 6% seller concessions for loans with LTVs between 75 and 90%; and, 3% seller concessions for loans with an LTV over 90%. Investment properties are capped to 2% of the purchase price.

If you can't make $200k work with your cash on hand and it's really worth $250k maybe offer it to someone with money for $205 - $210k and make a quick buck. I doubt someone who would take $200k would keep their price at $250k but you never know.

Most of the loans will have a maximum amount of seller contribution that you are allowed to apply. Depending on your loan type this could range from about 3-9% of purchase price that you are allowed to contribute towards your total out of pocket expenses. 

Definitely check with your lender on what the limits are for your specific situation. They may also give you ideas on different types of loans that you could qualify for that would require a lower down payment percentage.

Hi Mark, I'm not a loan expert, but I don't think the seller could actually credit you anything for your down payment itself, you'd have to come up with that yourself. I believe the percentage limitations in terms of seller concessions that Bill was referring to would only be in the form of buyer loan closing costs, pre-paids, etc.

If the current asking price equates into a 20.0% down payment that is just outside your reach, I would offer the seller what you can based on what amount for a down payment you do have, explain your situation and see if that works. 

I'd suggest looking for a different lender.  I'm sure you can find one that only requires a 20% DP on a non-owner-occupied property.

I've only heard of sellers helping with closing costs. I'd suspect most/all lenders would not allow that to extend to the DP also or at least not that large of an extent of it. But I don't know that, for sure.

Plus, when I bought my personal duplex, the seller concession could not exceed 6% of the purchase price.  With that said, I kind of did something like you're talking about when I bought it.  I wanted the seller to max out what they were allowed to for my closing costs.  My offer was $79K with $4700 seller assist for closing costs.  They accepted my offer of $79K, but only $1700 for closing costs.

More than one way to skin a cat!  I countered back at a higher price of $82K, with the same $4700 toward closing I'd originally asked for.  From the seller point of view, that offer was equal to what they countered.  But, for me, it was $3K more that I could roll into the loan instead of having to bring to closing. 

@Bill Brandt I haven’t seen the property but know what rents go for and know it works. I guess I was more so looking to see if there was a way to keep my money for say another deal. Again, this was under the assumption that the seller had any funds to do this. Was just something that popped into my mind and wanted to see if something like that had been done or not.

@Mark Cios

You are thinking of seller financing. I have done this with multiple of my investment properties. Not sure what everyone else is referring to, I think those must be traditional banks but I would never recommend working with a traditional bank. Your experience, knowledge, and the deal does not matter to them.

Work with privately owned banks (not your citizens, TDs, chases, etc). You can have the seller pay for your down payment and then you would setup a loan structure with them. To make everything really simple here, you would be carrying to loans. One from the bank and one to the seller. When doing this though you need to have extra high margins. I usually advise people on cap rates above 10% for seller financing deals. Bottom line is make sure you are still cash flowing well when taking all expenses and both loans into consideration.

I run an entire podcast about not just seller financing but other low and no money down strategies. Its called "No Money Down Real Estate Investing" on Itunes and Spotify. It can be a great help to you. DM me if you have any questions.

I also wanted to add that it is probably not a wise decision to buy a 4-plex with no or little cash reserves.  Owning rentals is a serious responsibility of providing functional housing for people.  You never know when problems are going to arise or things will break.  If the heater goes out in the middle of winter, you need to be able to fix it or replace it.  Tenant loses their job and now won't pay their rent or leave?  You need to be able to weather that loss of income, while also paying for legal services and/or court fees to evict them.

@David Flores thanks. I will look up your videos and put together some questions. This property is a real one, but I’m posing a hypothetical question to financing it. I missed out on a steal of a deal two weeks ago on another property due to a higher offer. That owner told me he’s got a few others he’s selling because he’s retiring so I know he’s got properties and money since he just sold that property. A light bulb clicked that maybe there can be something done in this instance where we both win. I guess my biggest question right now would be why would someone owner finance when they can just keep the building and collect money?

@Mark Cios

The seller is still getting paid either 80-75% of the purchase price from the bank. Then on top of this they would be receiving side passive income from the loan payment. People do this for various reasons, tax benefits, releasing themselves from the home and maintenance, assisting with retirement, or just simply to assist doing the sale. Seller financing will never work in areas that are fast turnaround. Seller financing usually works better in areas where places, especially investment properties, will sit for an extended period of time. Reason being is in places with fast turnaround, if today someone offers a creative deal they can almost be sure someone tomorrow will present a traditional deal or even all cash. For example, I live in Jersey, this will never work here. Properties I have in jersey are traditional purchases. My properties in PA and WV though, this is where it can be done.

@Greg Mihaylov

No the bank wont agree to something like that. They want money in their pocket. Some care where that money comes from (usually bigger traditional banks) and some don't care at all (smaller ones usually). Granted the numbers need to work still before they approve it, if you are losing money with the two loans incorporated into the analysis that smaller bank probably wont agree to the deal. U need to have a strong running business for the bank to allow u to take on so much leverage. These smaller banks aren't stupid, just a little more lenient. The good ones will focus on the health of your running business and proposed future, if that looks strong a lot of these small banks will hop on board. The better your track record the more lending you will be able to secure