Condo OwnerFi - Non Conforming to FHA guidelines

[Clint Gaskins]

Afternoon All!

I am located in a great city in the Southeast. I am preparing to make an offer on a small condo to use as a short term rental property. This is a condo, located in the historic epicenter of the city. The condo has a healthy HOA/Regime and was a conversion in the year 2000. The majority of residential ownership is second home/investment.

The Deal [Prospective]:
650 sq ft
2 Bed
1 Bath
$279,000 asking price
$245,000 offer price (estimated)
25% Down ($61,250)
$183,750 Owner Fi
No Point at Closing
5% Interests
30 Year Amortization
3 Year Balloon
No pre-payment after year 2

The Issue:
Here is the issue, which is more of a seller issue than a buyer issue. Nonetheless the problem has been identified, so its time to solve it.

The building that the condo is located in has retail/commercial on the bottom floor, street level. This retail/commercial is calculated at 47% of the gross square footage of the building. FHA Guidelines for conventional financing, unrelated to down payment amount, do not allow condo loans on properties that are located within a regime that has greater than 20% retail/commercial.

I am making the assumption that this is a new guideline, post the housing market downturn of 2005-2008.

Solving the Problem:
I have exercised the conventional route with no success.

I have contacted a couple of local portfolio lenders, but have not completed the process.

My goal is to submit a purchase agreement and seller financing opportunity to the Seller. This seems to be the best situation for the seller and me, the buyer.

The Questions:
Since the property is not bank-able at the conventional level, should the seller financing be written above bank rates? Was thinking of asking for 5%.

I would like to go in at 25% down, as this works best with my financial models?

I prospectively should have great income recorded by the end of year #2 and would likely take a new loan to a portfolio lender. What is a good ballon period to request? Was thinking of going for 3 years, 5 years at the most. This would allow for me to start trying to bank the loan at EOY #2.

This would be an investment property, is it normal to request a 25-30 year amortization?

What would be your ideal terms?

Disclaimer:
I have not yet obtained the amount of the outstanding mortgage on the property.

The property may be stressed by the Sellers business activities.