Construction loan on a Own Finance loan, is it possible?

[Adam Read]

I'm looking at buying an older home built in 1910 it needs about $40 thousand to fix it up. It sits on just under 1/2 acre, 1175 sq ft, 3 beds 1 bath. Its three blocks from the local schools only 5 minutes from the interstate and 15 to 30 minutes from a high employment cities. The owner agreed to a below market offer, because of the work needed, she longer wants anything to do with rentals. She is willing to do a owner finance because banks wont loan on it with all the work needed. My question is does anyone know if you can get a construction loan with a owner finance and than refinance into a 30 yr fixed? Thanks in advance to the BP community for all your wisdom! 

[Tom S.]

@Adam Read  No problem to assist, I've done a few deals like this.  The key is to make sure you can subordinate the seller's position to 2nd.  If there's no language in the note for that, once you close on the place and the seller has a 1st, you'll never be able to get a construction loan, at least not from a bank.  Maybe from a private lender but the terms probably won't be great.

Typically we would start with 1st position with the seller for say 5% interest.  And then include language stating if the seller agrees to subordinate should the need arise, buyer to pay $10k toward principle and increase rate to 6%.  That way a good rate is in place now, and flexibility for the future if needed.