Seller Financing

[Darwin Liu]

Hey Guys!

If I go through seller financing with a 5 year balloon payment, does anybody with experience know how hard it will be to refinance out? I know there is an unlimited number of variables based on the individual person but if this was on a property by property basis, what do they look at?

Thanks!

[Clay Manship]

Hi @Darwin Liu 

I am assuming that you are aware that banks will first have to look at your income, job, debt you owe, etc. before making a lending decision. Beyond all of that simplistic stuff, the main ingredient that a bank will look at when refinancing out of a deal like this is simple: equity.

If you are going to be refinancing this Note into a conventional mortgage product (30/30 terms) then you will need 20% equity in the property in order for them to make a refinance work, as conventional lenders will lend at a maximum LTV of 80% most of the time.

However, if you were getting the new financing from a commercial/portfolio lender, the terms are different. You would have to have at least 25% equity in the property, as much commercial/portfolio lenders lend at a more conservative 75% LTV minimum.

If you can prove that you have a good history as a borrower, via credit score, net worth, income streams, etc., they will want your business. You job should be to make sure that your loan balance will amortize down enough throughout the term of the original seller financing, or that you add enough equity via improvements to the property in order to meet the equity minimum when it comes time to refinance.