How does "down-payment" financing work?

[Dan Krause]

:D There was a recent BP thread on this and the discussion stopped. Can someone tell me exactly what the requirements are to finance a downpayment on a prfoperty that is going to be mortgaged anyway? Is down-payment financing a sensible way to finance property? Can you use down payment financing with commercial real estate? It seems to me that any property financed at 100% (which is what it would be-correct?) could be unstable finaciallyin the long run-i dont know-thats why i am asking. What are the benefits of down-payment financing? I hope this is in the right forum also. Thanks, Dan

[Bill Gulley]

Hi, financing a down payment is usually not done in coventional fiancing, since lendrs require skin in the game

Doing some seller financing in some form can be accomplished, over a term of 3 to 5 years. Generally the down payments is a seperate issue inside the overall transaction. Say the downpayment is paid within the first 6 months or a year and then the payment can drop for the remaining period.

These kinds of deals will be with distressed properties or owners who can't otherwise sell.

You can also obtain a private loan and maybe get a downpayment loan from a family member.

Does it make sence? It can, if the property is sold at a really good price. If after all said and done, it cash flows for you at market rate rents. Or, if it allows you time to get in and make repairs and then allows you to refinance, but refinancing can be tricky. Within one year, your refi amount will be based on the purchase price and costs of repairs or the appraised value, which ever is less!

VA loans are made at 100%, so it's a matter of risk to a lender, some first time homeowner loans can go to 103% maybe more for closing costs, but these are for owner occupied and they carry requirements to qualify. So financing 100% of a property can be done, but for investment properties, you're really skiining that cat awfully thin, few will cash flow with PITI at 100% and at market rents.