Things that don't actually happen - Seller Carry

[Clayton Silva]

One of the questions we get all the time from potential clients who listen to Bigger Pockets is: "can you work with a seller carry?" The short answer is: no, not technically. The seller carry, as most people understand it, is a second debt on the property that is in the seller's name and takes a second lien position to the primary mortgage. There are no conventional lenders that I am aware of, anywhere, that allow this. These do not exist because they cannot be sold to Fannie/Freddie. Then we get asked, "well, what about DSCR/commercial with a seller carry?" Answer is still no for the same reason. Very few banks will deal with subordinated debt even in the commercial space because it is outside of their risk tolerance. (Unless it is within their current LTV guidelines. I.E. the bank carries 60% debt and seller carries 20% debt on an 80/20 loan but at that point there is little to no net tangible benefit to the buyer trying to get a seller carry for down payment reduction). The only workaround I have found is to form an LLC with the seller directly and do a cash out refinance of say 75 or 80% to get the seller paid, and then the seller can carry the remaining 25% off the record/HUD. (This means you the buyer are paying the mortgage to the bank and a second mortgage to the seller until the agreed upon terms are met and you effectively buy them out).

Has anyone else had any luck with a seller carry + a mortgage?  I know a seller carry is super easy on a paid off home where the seller can carry 100% of the debt at that point, but trying to reduce down payment with a seller carry is essentially impossible as far as I can tell.