Commercial Down Payment Assistance Programs

7 Replies

Is this legit and has anyone bought a property with this method?

Is what legit? Could you provide more details?

Originally posted by @Rob Beland :

Is what legit? Could you provide more details?

It is seller funded (creative financing). It has to be equity in the property before purchase and that is what the lender uses and other fees to count as a down payment for the buyer and it is put into an escrow account to be dispersed at the time of closing. Something to that effect. :)

Example from fbcfunding.com

How the DP Program Works

  • Willing Seller
  • Property with Substantial equity
  • Contract is written for value of the property (seller will receive agreed upon net amount)
  • Third Party DPA Company or private investor sends funds to escrow for closing (from buyer).
  • Escrow title company sends DP funds plus fee back to 3rd party company at disbursement of escrow (from seller).

Example:

  • PropertyValue: $1,000,000
  • Loan amount: $750,000
  • Seller to net: $700,000
  • Down Payment: $250,000 from 3rd party DPA Company
  • DPA Fee: $30,000
  • Return to DPA Company from escrow: $280,000
  • Balance for additional closing costs: $20,000
  • Net to Seller: $700,000

This is better then me rattling off. :)

Do you disclose to the first mortgage lender that there is a second mortgage?  Or do you claim the down payment you're borrowing from this DPA company is your own money?  Commercial loans aren't the same as residential, though.  On a residential loan if you didn't disclose your down payment was borrowed you'd be committing loan fraud.  With commercial that's not always the case.  That said, still better to disclose the hide.

I think you still have to come up with $50K out of pocket in your example.  You're claiming the purchase price is $1 million when its really $750K.  You're getting a $750K first and a $250K second.  That lets you close, though you'll have to cover your side of closing costs out of pocket.  After costs, the seller would get maybe $930K (based on your numbers).  After closing, the DPA company want's $280K.  That leaves the seller with $650K.  That's $50K sort of the $700K they were expecting based on the true $750K purchase price and $50K in costs.  So you're going to have to come up with that $50K.

Originally posted by @Jon Holdman :

Do you disclose to the first mortgage lender that there is a second mortgage?  Or do you claim the down payment you're borrowing from this DPA company is your own money?  Commercial loans aren't the same as residential, though.  On a residential loan if you didn't disclose your down payment was borrowed you'd be committing loan fraud.  With commercial that's not always the case.  That said, still better to disclose the hide.

I think you still have to come up with $50K out of pocket in your example.  You're claiming the purchase price is $1 million when its really $750K.  You're getting a $750K first and a $250K second.  That lets you close, though you'll have to cover your side of closing costs out of pocket.  After costs, the seller would get maybe $930K (based on your numbers).  After closing, the DPA company want's $280K.  That leaves the seller with $650K.  That's $50K sort of the $700K they were expecting based on the true $750K purchase price and $50K in costs.  So you're going to have to come up with that $50K.

 Thanks Jon

Im confused,  How does the 250 down payment not go to the seller?  Are we talking about a Seller carry 2nd lien?   Otherwise why would a seller net 700 on a 1 mill property? 

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