Seller Financing Question

[Neil Robertson]

Seller financing question....

I'm thinking about proposing this to a seller.  Purchase price 600k, I give him 60k for a down payment, then 5k per month for 1 year (60K). 

After 1 year I owe him the rest of the price for the complex $480,000. 

Question 1- when I got to refi out of the seller financing deal into a conventional does the 120K I have in the property (60k down payment and 60K from 1 year of payments) count for the down payment? Do I now own 20% equity in the property? how does this work? I would purchase the property with a conventional loan but I do not have the 120K for the 20%. 

Question 2- During this 1st year term how does one handle the payment system? I've read that an escrow company would help with this. 

Thanks for your help!!! 

[Account Closed]

Originally posted by @Neil Robertson:

Seller financing question....

I'm thinking about proposing this to a seller.  Purchase price 600k, I give him 60k for a down payment, then 5k per month for 1 year (60K). 

After 1 year I owe him the rest of the price for the complex $480,000. 

Question 1- when I got to refi out of the seller financing deal into a conventional does the 120K I have in the property (60k down payment and 60K from 1 year of payments) count for the down payment? Do I now own 20% equity in the property? how does this work? I would purchase the property with a conventional loan but I do not have the 120K for the 20%. 

Question 2- During this 1st year term how does one handle the payment system? I've read that an escrow company would help with this. 

Thanks for your help!!! 

 Regarding your first question: It doesn't really work the way you describe. 

The $60k down counts, but the payments are mostly interest in the first five years of a loan so it is unlikely the payments will have much effect towards refinancing. However, when you go to refinance they will do an appraisal (which will cost you $1000 - $1500 or more if multi family) and base the loan on the appraised value compared to what you owe. If the value goes up in the year, that can help. If the value doesn't go up or in fact decreases, then you have to put more money in to meet the loan requirements. There are no guarantees either way. 

The way that financing works is you decide on a price, down payment and interest rate and term. For instance $600,000 with 10% down is $60,000 down. You take the remaining amount, $540,000 and at 5% for 20 years the payment is $3,564 a month not including property taxes and insurance. After 1 year of payments you still owe $523,869 since most of the payment goes to interest not principal. This is just a sample, the term, interest rate, amount down can all be different depending on the agreement.