Creative Financing

[Kevin Jackson]

Can anyone explain how loan assumption plus seller financing work? Im in the eary stages of learning about commercial real estate. Any advice, website, books that you have read would also be helpful. Also if you have ever done a deal of this sorts. Thank you.

[Ryan Gillette]

What it seems like you're talking about is assumption of the first lien and creating a second through seller financing for 100%. How that works, if you get a seller and a lender to agree to it, is this: You buy a property for $100,000. The seller has a first mortgage with $60,000 outstanding in principle. You assume (in the event the mortgage is assumable and you qualify) the $60,000, and then create a second mortgage subordinate to the $60,000, for $40,000. So you make PITI payments on the $60,000 to the first mortgagee, and then you make PI payments on the $40,000 to the seller. Typically the seller will have a balloon clause which means you may need to be able to pay that second off whenever the balloon comes due- or be able to get a subordinate second to replace it. That may be difficult to achieve.