Realtor · Lake Charles, LA · Member since 2019 · 39 posts · 25 votes
I have a deal under contract currently for $130,000. It's a tri-plex in Louisiana. I'm in contact with a local commercial bank and the seller is willing to finance the deal at 8% on 15 years or I can get a loan from the bank for most likely 5% 15 years.
The property is in a flood zone. Flood insurance after raising the small structure will only be $1,800/year.
Both will require 20% down most likely. But, what if I could convince the owner to let me do the deal with 15% down? What are your thoughts? Thanks!
Property currently cash flows 1,450. Has potential for 2,650 very quickly.
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Cody,
Anytime the seller will provide solid financing terms that's ideal because that loan will not count as one of your 10 Fannie/Freddie loans.
However, if the seller financing terms are worse than your local bank (higher interest rate and/or down payment) then why would you go with the seller financing?
The only times I've used seller financing is when the down payment has been low (less than 10%) and/or the interest has been lower than what I could get at a bank.
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Cody,
Anytime the seller will provide solid financing terms that's ideal because that loan will not count as one of your 10 Fannie/Freddie loans.
However, if the seller financing terms are worse than your local bank (higher interest rate and/or down payment) then why would you go with the seller financing?
The only times I've used seller financing is when the down payment has been low (less than 10%) and/or the interest has been lower than what I could get at a bank.
Realtor · Charleston, SC · Member since 2017 · 116 posts · 88 votes
6y
@Cameron Tope would you pay any points? I’m trying to structure a seller financing deal right now (my first one), and am trying to figure out the terms to put in my offer.
Anytime the seller will provide solid financing terms that's ideal because that loan will not count as one of your 10 Fannie/Freddie loans.
However, if the seller financing terms are worse than your local bank (higher interest rate and/or down payment) then why would you go with the seller financing?
The only times I've used seller financing is when the down payment has been low (less than 10%) and/or the interest has been lower than what I could get at a bank.
Hope that helps!
Not exactly....
The “10 loan Fannie limit” is Not a max 10 Fannie loans...to qualify for a Fannie you can not have “10 mortgaged properties”....it doesn’t matter who holds the mortgages. Note that the limit is “10 mortgaged properties” not “10 loans”....10 properties under 1 blanket mtg counts the same as 20 properties with 2 loans on each one.
I have a deal under contract currently for $130,000. It's a tri-plex in Louisiana. I'm in contact with a local commercial bank and the seller is willing to finance the deal at 8% on 15 years or I can get a loan from the bank for most likely 5% 15 years.
The property is in a flood zone. Flood insurance after raising the small structure will only be $1,800/year.
Both will require 20% down most likely. But, what if I could convince the owner to let me do the deal with 15% down? What are your thoughts? Thanks!
Property currently cash flows 1,450. Has potential for 2,650 very quickly.
@Cody Cross: Love the post man.
When you are doing the deal analysis, If you want the cash flow to be great, then I would focus on what the mortgage will be with PITI. Most banks don't have a lot of flexibility so you are halfway there by just plugging in the banks 5% interest rate with the purchase price and the rest of the terms.
Its the sellers offer that matters....I would go back to him/her and ask to do one of a few things:
1. A longer payoff period. If its longer, you pay more in interest, but your monthly payment goes down.
2. Explain to him that the bank is offering much lower interest rate and 8% doesn't really work. Its true you can only get 10 Freddie / Fannie loans, but even a portfolio lender's interest rate is like 5.5%-6.5% right now, so that 8% makes no sense.
3. Ask him to lower the interest rate a lot (Like do a 2% rate), but increase the purchase price. This should lower your monthly payment, and the seller will put more money in his pocket. This is because interest for him is taxed at income level (Probably 35%-40%), while capital gains are taxed at a set rate of 25%. He saves potentially 15% on taxes.
@Cameron Tope would you pay any points? I’m trying to structure a seller financing deal right now (my first one), and am trying to figure out the terms to put in my offer.
Sarah, read my post above. This may help you negotiate. I just bought a house with seller financing 3 weeks ago.
@Cameron Tope would you pay any points? I’m trying to structure a seller financing deal right now (my first one), and am trying to figure out the terms to put in my offer.
I personally didn't pay any points but you can negotiate anything - points, interest rate, term, balloon payments, interest only payments, etc.
You have to look at the deal and negotiate with the seller on what makes sense for your (and their) situation.
Anytime the seller will provide solid financing terms that's ideal because that loan will not count as one of your 10 Fannie/Freddie loans.
However, if the seller financing terms are worse than your local bank (higher interest rate and/or down payment) then why would you go with the seller financing?
The only times I've used seller financing is when the down payment has been low (less than 10%) and/or the interest has been lower than what I could get at a bank.
Hope that helps!
Not exactly....
The “10 loan Fannie limit” is Not a max 10 Fannie loans...to qualify for a Fannie you can not have “10 mortgaged properties”....it doesn’t matter who holds the mortgages. Note that the limit is “10 mortgaged properties” not “10 loans”....10 properties under 1 blanket mtg counts the same as 20 properties with 2 loans on each one.
Thanks for replying Wayne. I don't know one seller financed buyer that reports to fannie/freddie so the seller financed mortgage will show up on your credit report. Have you seen something different?
Does the blanket mortgage rule only apply to fannie/freddie? I spoke with my lender and she said it doesn't matter how many loans I had but how many properties.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
6y
@Cameron Tope A seller financed mtg shows up in county records like any other. Also you’d be lying on a loan if you omitted it. As for the blanket mtg, exactly....it doesn’t matter how many loans you have, the limit is “10 mortgaged Properties”.
In the post you quoted I meant to say 10 properties on one blanket mtg counts the same as 10 (not 20) properties with 2 loans on each one.
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Wayne,
You're 100% correct - I would never lie on a loan application or try to hide something from the lender. However, if an LLC I owns is the borrow for the seller financed mortgage, will that show up on a loan application?