Seasoning and Refinancing out of Seller Finance.

[David Mackin]

Anyone have any insight on seller financing and if there is typically a seasoning period before paying off loan (pre payment penalties etc.)

Specifically curious on possibility of someone using seller financing with intention to use VA financing at a later time on same property.

I'm not super versed on seller financing. Any insight is greatly appreciated!

Thanks.

[Andrew Postell]

@David Mackin ahh, so yes, there is a term used called a "prepayment penalty".  That's really the only mechanism that exists in lending that fits to anything close to what you are describing.  Usually a seller-financed note doesn't have this unless you are working with an extremely seasoned seller.  Meaning, if you are buying a property from a fellow investor or something of that nature.  But if you do come across a "normal" property - one that is usually found off market - then the sellers are usually relying on us to create those notes.  It would be extremely unlikely that a "pre-payment penalty" would exist in that type of a scenario.  I guess there's always an exception but I would say to not really worry about it.  Some commercial loans have this where there is a penalty if you were to pay off the loan in the first 3 years.  It works in a sliding penalty - meaning each month you make a payment the penalty goes down.  The penalty itself is usually the amount of interest the loan would earn in that first 3 years.  Hope all of this makes sense.