Refinancing a seller financed property

[Ken Seveur]

What's up BP fam. I've found a potential seller interested in seller financing (contract for deed) through a title company. It's a fully rehabbed EOG townhouse asking $65k. What I'n thinking to offer is $4k down and $700/mo until paid in full. Market is around $850-$950 per mo. Assume we agree to terms. Fast forward, when/how could I go about refinancing to a  bank mortgage? Would I have to again pay 25-30% down? Would the rental income help me get approved for that loan? Would a balloon payment go to the seller directly from the bank? How soon after I settle on contract for deed with seller can I then refinance that property? Any insight on this would be greatly appreciated. 

Thanks in advance!

[Harjeet Bhatti]

@Ken Seveur  You can see it has different guidelines for both products. I am not sure which product guidelines you are asking.   I hope this help.

Payoff of Installment Land Contract Requirements

When the proceeds of a mortgage loan are used to pay off the outstanding balance on an installment land contract (also known as contract or bond for deed) that was executed within the 12 months preceding the date of the loan application, Fannie Mae will consider the mortgage loan to be a purchase money mortgage loan.

The LTV ratio for the mortgage loan must be determined by dividing the new loan amount by the lesser of the total acquisition cost (defined as the purchase price indicated in the land contract, plus any costs the purchaser incurs for rehabilitation, renovation, or energy conservation improvements) or the appraised value of the property at the time the new mortgage loan is closed. The expenditures included in the total acquisition cost must be fully documented by the borrower.

When the installment land contract was executed more than 12 months before the date of the loan application, Fannie Mae will consider the mortgage loan to be a limited cash-out refinance. In this case, the LTV ratio for the mortgage loan must be determined by dividing the new loan amount by the appraised value of the property at the time the new mortgage loan is closed.

Cash-out refinance transactions involving installment land contracts are not eligible for delivery

Rent to own

Rent Credit for Option to Purchase

Rent credit for option to purchase is an acceptable source of funds toward the down payment or minimum borrower contribution. Borrowers are not required to make a minimum borrower contribution from their own funds in order for the rental payments to be credited toward the down payment.

Credit for the down payment is determined by calculating the difference between the market rent and the actual rent paid for the last 12 months. The market rent is determined by the appraiser in the appraisal for the subject property.

Documentation Requirements

The lender must obtain the following documentation:

• A copy of the rental/purchase agreement evidencing a minimum original term of at least 12 months, clearly stating the monthly rental amount and specifying the terms of the lease.
• Copies of the borrower’s canceled checks or money order receipts for the last 12 months evidencing the rental payments.
• Market rent as determined by the subject property appraisal.