Private Money for Down Payment

[Matt Faix]

Up until this point we've used our own money for deals and financing. We were recently approved for a 80%LTV loan on a triplex that we are buying. If we want to use private funds for the other 20%, does this have to be approved by the 1st lender (Local bank in this case), and would they dictate the terms or are we able to negotiate that with our second lender.

Also, can private money be used to cover closing costs? Or is this always the buyer? Curious how the 'mechanics' of a transaction like this work. Thanks!

[Daniel Karbownik]

Hi Matt,

This sounds like a question for your first position lender. Only they will be able to tell you how they feel about that. My instinct says it won't fly though. I assume by "private funds" you mean another loan? You are effectively trying to accomplish a 100% LTV, just split up between 2 different sources.

Have you actually run the numbers on this?  Would you even cash flow financing it 100%?  

 Put yourself in the shoes of the first position lender.  Suppose a buyer wants to buy a place for $100k, and you are willing to loan $80k to them.  They then come to you and say they're going to borrow the other $20k.  What if they stop paying the $20k loan?  That lender could foreclose on the property and wipe out your lien, and you lose your $80k.  

Bottom line - ask your loan officer, but I doubt this will fly.