Do banks like seller financing? - Posted by Timothy

import · August 30, 2006, 10:53am

Posted by Frank Chin on August 31, 2006 at 12:47:56:

Bob:

Generally, a bank would look to the buyer (the new owner) to perform, and the nore equity, the stronger the buyer, the more the buyer has at risk.

If I am to understand the point you are making correctly, are you expecting the bank to have the holder of the second mortgage, i.e. the seller, to step up to the plate, if the new owner is neglectful of his duties, with his 20% at risk??

The buyer, i.e. new owner, should be viewed as the financially responsible party to not only make the mortgage payments, but be a capable landlord (if he’s not the user) keep up with the insurance, maintain the building among other things.

Most of the above responsibilities cannot be financially or legally be assumed by the second mortgagor.

Keep in mind many people who offer seconds do so in the belief that he’s still ahead of the game even if the second IS NOT paid, given that the property may have appreciated 20 times. Hence the silent seconds. Which also explains why seconds can be purchased pennies on the dollar when problems develop.

For the banker, the party to hold responsible should be the one with the most to lose. If the buyer feels losing 5% is no big deal, and the holder of the second feels that the second is just so much extra profit, then what is the banker left with??

Frank Chin

import · August 30, 2006, 10:53am

Do banks like seller financing? - Posted by Timothy

Posted by Timothy on August 30, 2006 at 10:53:40:

If I can get a seller to carry some financing, do the banks become more interested? For instance, is there a magic number/percentage that enticices a bank lender to take the first position on a mortgage? Or is all the same to the conventional bank?

import · August 31, 2006, 9:04am

Re: Do banks like seller financing? - Posted by Frank Chin

Posted by Frank Chin on August 31, 2006 at 09:04:25:

Timothy:

Banks will always insist on first position, with the exception of HELOC’s.

They generally like to see the buyer put some money in, and they don’t like it borrowed, though people skate around this.

The theory is, if the bank provided 80%, and the seller 20%, the buyer could walk away “at no financial risk”.

Frank Chin

import · August 30, 2006, 1:35pm

Re: Do banks like seller financing? - Posted by Mike (Seattle WA)

Posted by Mike (Seattle WA) on August 30, 2006 at 13:35:16:

Banks dislike any 2nds below their firsts. More risk of default and all. People illegally get around this via silent 2nds. Go look it up

import · August 31, 2006, 10:54am

Re: Do banks like seller financing? - Posted by Bob Smith

Posted by Bob Smith on August 31, 2006 at 10:54:52:

The seller has substantial money (in the form of a second mortgage) at risk. Absent a fraudulent appraisal, wouldn’t you rather have a seller with 20% at risk than a buyer with 5% at risk?

import · August 30, 2006, 4:14pm

Re: Do banks like seller financing? - Posted by Max-Va

Posted by Max-Va on August 30, 2006 at 16:14:51:

Sorry Mike
I missed the illegally part.

import · August 30, 2006, 4:13pm

Re: Do banks like seller financing? - Posted by Max-Va

Posted by Max-Va on August 30, 2006 at 16:13:32:

Silent seconds are loan fraud and can get you jail time. That was bad advise.

Banks usually like to see the buyer come with some of their own money. An 80/10/10 or 75/15/5 is fairly common. It must be disclosed to the bank though.