Clinton, AR · Member since 2017 · 37 posts · 6 votes
I have been reading several books about investing over the last couple months. I have heard a lot of talk in regards to Seller financing down payment, which sounds very attractive since I am looking into apartments mainly. How does this actually work? Does the seller have to give you the cash upfront then you turn around and give it to the lender? Or does the seller pay the lender directly? Just curious about it, seems like it could be potentially a good option for some very profitable property outside of my price range.
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
9y
@Justin C Huggins - this is typically handled on the closing HUD. As an example, if you are buying a $1M property with 80% traditional financing, the HUD would show $800K coming from the bank and $200K coming from the seller. This is almost always in the form of a 2nd position mortgage on the property. If the seller's cost basis is $500K, then they would net $300K in cash and receive a note (and the corresponding monthly payments) in the amount of $200K.
In my experience, most banks will not allow this. You may be able to find one that will work with you, but you should be very up front with them about it to avoid any surprises/delays/cancellations at closing.
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
9y
Call around, I have found one commercial lender so far that will allow a seller to carry 10-15% of the down payment with a 5 year loan/20-25 year amoritization. Good to have in my back pocket if a deal pops up.
I have been reading several books about investing over the last couple months. I have heard a lot of talk in regards to Seller financing down payment, which sounds very attractive since I am looking into apartments mainly. How does this actually work? Does the seller have to give you the cash upfront then you turn around and give it to the lender? Or does the seller pay the lender directly? Just curious about it, seems like it could be potentially a good option for some very profitable property outside of my price range.
It'll have no impact assuming traditional 30YF good interest rate financing.
If you're ok with commercial financing that comprises some combination of a higher rate, ARM, balloon payments, etc etc, then dial for dollars until you find a commercial lender that'll go for it, and ask them how it works with them. Expect to do a lot of dialing.