Re-finance with partial seller financing?

[John Bucci]

If I purchase a rental property with 45k cash down and 25k in seller finance, 10% interest only, with a balloon in 3-5 years will a bank allow me to take out a mortgage on the property and cash out in order to pay off the loan amount as soon as possible? Or will the seller finance loan cause issues trying to get a mortgage from the bank? Thanks in advance!

[Tom S.]

@John Bucci  shouldn't be an issue as long you and the property qualify for the banks guidelines.  For example, if the property in the above scenario is worth $100k in 3-5 years, most likely yes.  But if it's only worth $50k, prob not (loan amount might be too small).  

Assuming if it's worth $70k (45k down and 25k seller finance), and the price doesn't change, the bank will prob lend $70k * 75% = $52.5k. Then you would pay off the seller the $25k, and reimburse yourself $27.5K of your $45 initial investment.  All of this is excluding closing costs of course.  You'd also have to conform to the bank's seasoning issues: usually owning 6-12 months.

- Tom