Creative financing. HOW?!

[Chris Brenner]

Hey there! I have a weird creative financing question for you. Have you ever heard of a deal where the seller carried the financing? Like say I dont have 20% down on a 100000 property. The seller has 100% equity the property or a majority of it. The seller agrees to ”gift” the buyer the 20% down by using equity in the house. The buyer and seller agree to pay the 20% back to the seller at whatever agreed rate and time.

Therefore the buyer obtains the property at essentially 0 out of pocket, but is on the hook for a mortgage and paying the seller back? Have you heard or experienced this? How do you structure that as a win win win? Thank you for your time

[Don Konipol]

@Chris Brenner

If you’re talking about seller financing 100% of purchase price it happens, though probably in situations where the seller and buyer have a close relationship, such as family members, or in situations where the property is hard to sell and the seller is highly motivated.

If you talking of the seller selling at 80% of value so that the other 20% represents the buyers equity, that won’t fly as almost all lenders will want the buyer to have a down payment based on 20% of the sale price, not the appraised value. In the old days we used to see a lot of these types of deals, which almost always necessitated misleading the lender. Lenders got tough with this about 20 years ago, and among the various documents borrowers sign at closing are affidavits attesting to the source of down payment. The consequence of lying is mortgage fraud, with numerous parties servicing 3-5 years prison terms.

There are creative ways to make these deals happen, may of these techniques reside on the margins of legality. However, a very simple technique is to ask the seller to take out the largest mortgage possible and then buy the property subject to the mortgage. Of course this violates the due on sale clause of the mortgage, but at this juncture in time that clause is not enforced the vast majority of time.