Seller financing private lender cash out refi

7 Replies

I need help understanding this scenario. I have a house for sale at $100K with seller financing. Give the seller 7% interest rate but I am using private lending for the 20% down payment of $20K. I will pay the private lender 7% return monthly. This deal has a 3 year ballon. Once I've  acquired the property and it has been 6 months to a year, can I execute a cash out refi? I want to refinance out of the seller financing into a conventional 30 yr loan and pay off the seller and  pay back the private lender the $20K. My question what is the best way to refinance out of the seller financing and pay off the private lending? Not sure I could perform a delayed financing ( cash out refi). From what I understand that happens only when you pay 100% cash. 

Thanks you so much! 

Who has first lien?  The seller or the lender?  Either way, if you refinance with a bank, they will pay off any liens before closing.

Obviously, you have to make sure the appraisal is 20%-30% above what you owe the two lenders.  I have found some banks to give me a cash out refi but it they are much harder to find.

If you hold the property for 12 months (seasoning) you will have better luck with the banks looking at the appraisal versus what you bought it for.

Thanks@Dan Costantino

The seller has the first lien.  I would have to do a "wraparound" for this seller financing deal. My plan is to wait 1 year then do a delayed financing (cash out refi) with the bank into a conventional loan. The conventional loan would pay the seller and the cash out refi would allow me to use the equity to pay back the private lender. 

@Dan Costantino

 Yes the private lender is OK with 2nd position.

I have't decided on how I will hold this property. I currently only have 1 SFH that's under my name. I am in the process of getting LLC setup and will transfer the 1st SFH. But this deal would likely be in my name and then transfer.

@Jonathan Bonck

As mentioned by others, you need to make sure you're getting a good discount off the appraised value of the property. If you're essentially doing 100% financing of the appraised value, even living in the place you'll be pressed to get a 95% LTV loan (there won't be enough proceed to pay off the seller financing and the private lender). If it's an investment property, then 70%-75%. There may be appreciation in a year, but there could also be a decline.

Make sure in advance you'll qualify for another mortgage, as you mentioned you already have one property.

Good luck!

- Tom

Great advice! Thanks @Tom S.

 I made an offer at 80% below the value of the house. This investor is trying to unload 6 SFHs in order to upgrade to an apartment building. So he is moderately motivated. But he needs cash. I have sent him my proposal. Waiting to hear back now!