Owner Financing & Bank Financing in one?

Question

Hello!I recently heard from a friend that he managed to buy a property with minimal upfront costs. According to him, he utilized a strategy called owner financing, where he financed a portion of the property's purchase price directly with the seller. Additionally, he obtained a loan to cover the remaining down payment amount that he paid to the owner, which facilitated the owner financing arrangement. Since I'm not well-versed in this process, I'm interested in learning more about it. Is this a commonly used strategy to acquire a property with no down payment? Thank you for your help.

Eliott Elias · Answer

It is not common to find a lender to lend on a down payment and take 2nd position lien. He must have had a private money lender that he profit shared with.

Matt Devincenzo · Answer

No I wouldn't say it is common, and it is typically MORE difficult than getting a loan with no seller financing in place. I say that because typically lenders who are in the business of lending have different rules if there is another loan on the property. When that is the case often they will lower the amount they will loan.

Loan to Value refers to the % of a property they will lend to. e.g. 95% LTV means they will give you 95% of the money and you will have a 5% down payment.

They also have CLTV or combined LTV, and often under that they will lower their total loan amount to protect themselves. Also this means that there is still a DP as they don't want you buying with 100% financing since statistics say you're more likely to default on that loan.

So it is do-able but adds new challenges to the process that you need to be aware of.

Erik Estrada · Answer

You can achieve a low down payment with the seller being in second position. You will still need to put at least 5% down.

You can also cross collateralize another property you own to help you achieve 100% CLTV with seller financing.

Other than that, most lenders will not do a downpayment loan. Too much risk .