Seller Financing for down payment?

[Andy Thoman]

So I know that you can do this, but I'm curious as to how.

If I wanted to buy a house, but didn't want to tie my money up in it so I wanted to ask the seller to finance the down payment, then how would I do this?

For example, if I had a $100k house I wanted to buy with a traditional mortgage with 20% down, but I didn't want to put my own money in it.
So I ask the seller to pay the down payment of $20k, and I'd repay them at 10% interest for to be paid off in 5 years.

First, is this realistic to ask for something like this from a seller? Would a mortgage lender be ok with me doing this?

Also, what would the order of payments be? Here's what I assume: the lender gives the seller $80k and thats it. Then I just pay the seller the monthly payment for the next 5 years on that $20k.

So in the end,  I'd come out with two loans, a 30 year loan for $80k at the mortgage interest rate and a 5 year loan for $20k at the 10% negotiated rate.

My second part of the question is where does the risk fall? If I am unable to pay the payments, I would think that the mortgage lender has the right to forclose on the house. But what right does the seller who financed $20k have if I was not able to pay? Is that just the risk the seller is taking? Or would they have a claim to anything if I stopped paying the loan back?

Or on the flip side, if I wanted to pay the $20k early, would that be ok in an average deal like this?

A final part of my question, how would one ho about doing this deal? Would a real estate attorney be able to take care of all of this, are there agencies specific to this type of work?

[Zachary Bradigan]

Originally posted by @Andy Thoman:

Originally posted by @Brie Schmidt:

Originally posted by @Andy Thoman:

So I know that you can do this, but I'm curious as to how.

If I wanted to buy a house, but didn't want to tie my money up in it so I wanted to ask the seller to finance the down payment, then how would I do this?

For example, if I had a $100k house I wanted to buy with a traditional mortgage with 20% down, but I didn't want to put my own money in it.
So I ask the seller to pay the down payment of $20k, and I'd repay them at 10% interest for to be paid off in 5 years.

First, is this realistic to ask for something like this from a seller? Would a mortgage lender be ok with me doing this?

Also, what would the order of payments be? Here's what I assume: the lender gives the seller $80k and thats it. Then I just pay the seller the monthly payment for the next 5 years on that $20k.

So in the end,  I'd come out with two loans, a 30 year loan for $80k at the mortgage interest rate and a 5 year loan for $20k at the 10% negotiated rate.

My second part of the question is where does the risk fall? If I am unable to pay the payments, I would think that the mortgage lender has the right to forclose on the house. But what right does the seller who financed $20k have if I was not able to pay? Is that just the risk the seller is taking? Or would they have a claim to anything if I stopped paying the loan back?

Or on the flip side, if I wanted to pay the $20k early, would that be ok in an average deal like this?

A final part of my question, how would one ho about doing this deal? Would a real estate attorney be able to take care of all of this, are there agencies specific to this type of work?

 The issue is finding a bank that will allow it.  I have yet to find one in the 20+ banks I have talked with as the guidelines stipulate that only a small percentage (3% - 5%) of the purchase can be funds that are not yours.

How do they define what funds are yours?
I don't understand the logic in that though. Why does the bank care? If they're only loaning 80% and they have the right to forclose, it doesn't seem like they have much risk involved.
Are there other agencies aside from banks that might loan the 80% mortgage in this deal?

The banks care how much risk is being taken on, and in their eyes too much debt on a property is bad even if it cashflows well. If the Buyer 100% finances a deal, there is more risk of foreclosure because they are paying back 2 debts, so a second lien would have to be disclosed(I assume this is in the paperwork for the loan you sign for), and banks don't like that.