Seller Carryback Workaround?
Hey everybody. I am looking into purchasing another multifamily and wanted to ask the seller to carryback 10% of the loan to help with the down payment. But when I checked with my lender, they only will lend with a combined 80% LTV, including the seller financing portion.
Advice from a colleague was to set up my own financing on the back end of the closing, meaning I would close using my own money, but then have the seller (or private investor) lend their funds and take a second mortgage post-closing. I don't want to do anything illegal, as well as I don't want to hide anything from my lender. I have a great portfolio lender than I want to keep solid relations with for years to come, so I don't want to jeopardize that. Would this strategy likely be frowned upon by my lender, or is this a normal technique? I wanted to hear from the BP community before seeing if I should pitch it to the lender. Thanks!
Most Popular Reply
The loan program they quoted you says it only allows an 80% Combined (first and all juniors) Loan To Value. So any loan structure, even post close, would violate their guideline. Is it illegal? No. May they call the note due? Depends on the security instrument language. Sometimes commercial loans will have a clause that restricts subordinate lending, which is what that would be.
In some sense, they said "No" and you are asking everyone else to say "Yes" while stating they (bank) are the ones whose statement matter.
@Ben Leybovich is awesome at teaching multi financing.
The loan program they quoted you says it only allows an 80% Combined (first and all juniors) Loan To Value. So any loan structure, even post close, would violate their guideline. Is it illegal? No. May they call the note due? Depends on the security instrument language. Sometimes commercial loans will have a clause that restricts subordinate lending, which is what that would be.
In some sense, they said "No" and you are asking everyone else to say "Yes" while stating they (bank) are the ones whose statement matter.
@Dion DePaoli Thanks Dion, that makes sense. I appreciate the response.
@Pete Sailhamer Hi Pete, Do you have any more info to provide? I am in the same position as is many here on BP, so any updates would be appreciated. Thank you!
Yes, I simply asked my lenders what their policy was. They know me well enough to know that I am an investor who is always looking to use more of other people's money, and they trust I'm simply looking for ways to expand within the confines of their policies. Some lenders said yes, and others said they didn't accept second mortgages.
I even made a post on BP to see what lenders out there (in Wisconsin) accept second mortgages, which is how I connected with another great lender (@Nicholas Vandervelde) from First National Bank near Madison. I've also got some more great contacts of lenders in the southern Wisconsin area for anyone who needs one.
Does that help? Do you have any specific questions that I can answer?
@Pete Sailhamer I'm trying to think of solutions to your problem. Is there anyway to have him put a lien on a different property you own to secure the financing? Is there a way you could do some type of joint venture agreement where he keep 10% in and then he gets a % of the profits from the building and when he's paid in full his ownership percentage disappears? Best of luck with this! Cheers, Sawyer
@Pete Sailhamer - older post but 100% relevant for my situation. Did you have any success finding a lender in southern WI that allow either a secondary lien or allow a higher than 80% combined LTV?