Understanding Seller Financing and Amortization

[Joel Bowen]

Understanding Seller Finance and how Amortization is applied to the deal.

I am in the process in researching and learning as much as I can about seller financing options since I am having a hard time securing a conventional loan (No W2). Although a conventional loan is not an option for me at the moment, it will be an option for me in the next year or so after I build up my work history.

So for simplicities sake, let’s just say that I have agreed to seller financing terms of $100,000 at 5% interest with 0% down with an amortization of 30 years over a 3 year Balloon. As I understand it, after the first 3 years the remaining loan amount needs to be paid in one last payment to the seller.

As understand it, over the 3 year period. All interest paid goes direct to the seller and all of the principle is applied to pay down the terms amount. So given the schedule below, the seller would receive $14,669 in interest (2016 $3732 + 2017 $4910 + 2018 $4832 + 2019 $1195) and the total amount of $4,242 (2016 $1100 + 2017 $1532 + 2018 $1610 + 2019 $415).

So after 3 years the total amount left on the terms would be the initial $100,000 – $4,242 (the principle paid) leaving a balance of $95,758.

As I understand it (please correct me if I am wrong), before the 3 year balloon, I would need to either secure a conventional and/or private loan for the remaining balance.

Questions I am having a hard time understanding.

• 1.Let’s say the bank is lending on a conventional loan. I am assuming I would still have to come up with the banks terms as far as down payment? Let’s say the house did not appreciate and is worth $100,000 and the amount owed is $95,758, what typically is expected from the banks at this point to secure the loan? Are they looking for say 20% down of the loan value so say $20,000? If this is the case, how do most people come up with the 20% down?
• 2.If I have equity in the house would the bank not expect a down payment? So for example let’s assume the house appreciated and is worth $120,000 with $95,758 owed giving it about 20% equity. Would I still have to come up with a 20% down payment on the loan amount?