Seller carry back question - Posted by diana

Posted by Eric C on July 09, 2001 at 01:10:16:

Hi Michel -

Most (if not all) lenders will tell you they are “conservative” when they really mean is “I don’t know you” and “I don’t understand your request”.

Ed and Terry have a great course on lenders. It the best course for a beginner on the market today. Sign up. Learn to deal with banks and bankers. It’s not that hard. Honest.

Remember what the banker needs from you:

  1. How much money do you need?
  2. When do you need it?
  3. What are you going to use it for?
  4. How will you repay the loan?
  5. If all else fails, and you are unable to complete the project, how does the bank still protect itself, it’s capital, and it’s profit? (also known as Plan B)

You need to write all this up and package it well. Neatness counts!

Make sections describing as much of the property as possible. The proposed repairs,etc.

But the very first section should be an informal letter from you to your banker outlining the answers to those 5 questions I asked earlier. It needs to be concise and to the point. Don’t make him (her) search for relevant details about your deal.

Point 5 is probably the most important. And the one that most people ignore. It’s where you are making clear to the bank that they CANNOT lose money on your deal. No matter what happens.

And there are a lot of ways to give them that assurance. You can offer compensating balances, additional collateral, or my favorite – buy-out agreements.

I often have a local group (or investor) who is well known to the bank (if I am not) write up a simple buy-out agreement that states that they would be happy to purchase my interest in the project at any time within the next year (or whatever term you are seeking) on thirty days notice. Pension plans are good for this.

Sometimes, I pay for this (a point), but most often I don’t. (they are compensated through other means).

I can’t say whether this type of arrangement would work for you, but it has certainly worked for me in the past and continues to do so (and just up the road from you!).

Whether or not you are successful in securing financing for this deal, you should plan to spend some time getting to know about banks and banking.

Deals come and go but the knowledge gained is yours forever.

Try calculating the yield on that.


Eric C

Seller carry back question - Posted by diana

Posted by diana on July 06, 2001 at 16:52:08:

I want to buy a property, seller asking 100,000
Seller wants to cash out (don’t they all)
Lender wants me to put up 20%
I only have 10,000
It was suggested on this board that I ask the seller to carry back 10,000

I’m confused. How does that get me out of paying the 20% that the lender wants.
If the seller will carry 10,000 that would mean I would then have to pay 90,000 and come up with 18,000 in closing costs. (remember i only have 10,000) What am I missing. How would getting the owner to carry back help with the lender?

Re: Seller carry back question - Posted by Ed Garcia

Posted by Ed Garcia on July 07, 2001 at 10:15:16:


JohnBoy gave you a good answer. I would like to ad to that, by saying that you can also do a 95% CLTV (combined loan to value) or (cumulative loan to value). So you could do any combination of seller carry-back as long as you come in with 5% of your own money.

Example: Buyer 5% down, Seller carry-back 15%, lender lends 80%.

Ed Garcia

Re: Seller carry back question - Posted by JohnBoy

Posted by JohnBoy on July 06, 2001 at 23:51:59:

It would not mean you then have to pay $90k and come up with $18k.

The lender says they want you put down 20% which would be $20k on this property. You would put up your $10k in cash and get the seller to put up the other $10k by agreeing to carry that amount back as a second mortgage. Your $10k plus the seller’s $10k as a second mortgage would meet the 20% total you need for a down payment. Not all lenders will allow this but a lot of them will. They will allow the seller to help with the buyers down payment by carrying part of it back as second mortgage.

In most cases when the lender says they want you to put down 20%, what they are saying is that they will loan you 80% of the purchase price. Meaning you will need to come up with the other 20% yourself. That could be by you putting up the entire 20% yourself, or you putting up part of the 20% by getting the seller to put up part of it in the form of a seller carry back.

What you need to find out is if the lender you are working with will allow seller carry backs to assist as part of the down payment.

In this case your loan would what is referred to as an 80/10/10 instead of an 80/20.

80% funded by the lender. 10% funded by the buyer. 10% funded by the seller by carrying back a second for that amount.

As long as your debt to income will meet the lenders guidelines for qualifying for the payments on their 80% first mortgage and the payments on the sellers 10% second mortgage you shouldn’t have a problem. The lender is mostly looking to secure their loan at lower loan to value against the property in the event they had to take it back. That would give them a 20% cushion to help recover all the money the loaned against the property.

Now What JohnBoy? - Posted by Michel

Posted by Michel on July 07, 2001 at 04:26:06:

I’ve been reading you for a while. I really appreciate you sharing your experiences. Your comments are more than welcome on this one!

I had found 2 houses sitting on 3 acres in the country, south of Ft Worth, Tx.

House # 1: 1,500 sq. $1500 needed in cosmetics.
House # 2: 2,400 sq. $6000 " " ".

Accepted Offer for both houses: $46,000 with $11,000 carried by owner at 7% for a period of 10 yrs.

ARV: for both houses: $85,000


House #1 ARV : $35,000
House #2 Arv : $65,000

I went to 4 lenders, and I was turned down by each of them, being told that I had to come up with 20% down from my own money. Notice here that I’m dealing with a very CONSERVATIVE lending community! By the way, when I started my inquiries, my FICO score was 719. Now it’s down to 694. I’m not panicking, since I have 2 months before I close the deal. BUT, I’m running out of options! I have 20k in personal funds, which I had planned to use some for the repairs. But it’s getting to be frustrating. I had contacted a hardmoney lender and I was told that I would have to split the land in order for them to consider financing the 2 houses. More costs for a new survey.

The numbers are right! Low risk for a lender!

What am I missing here?


PS: Sorry for this long message!

Re: Now What JohnBoy? - Posted by JohnBoy

Posted by JohnBoy on July 09, 2001 at 07:39:53:

Eric has given you a great outline on preparing your deal to present to a banker. The only thing I want to add to that is make sure you deal with the commercial department, not the residential department. The commercial department is more flexible with their lending guidelines. Also, when you go into to present your deal, present yourself with authority, like you know your business inside out and the bank would be a fool not to approve your loan. In other words, don’t walk in and ask for the loan, present yourself with confidence EXPECTING the loan!

You stated the ARV value on both houses would be $85k. Then you give the breakdown on each house and the ARV value comes out to $100k for both houses. Which one is it?

Using the breakdown numbers what about trying this:

Split the property like the hard money lender wants. Then borrow 65% of the ARV against the $65k property. That would allow you to borrow $42,250. Take $35k of that to pay off the seller. Have him secure his $11k second against that property. Use the $7,250 left to cover the repair cost and spliting the property. This would leave you with the other property free & clear! Sell off the first property and pay off the hard money lender. You can either pay off the seller on the second (as in get a nice discount on the $11k note for an early pay off!) or get the seller to allow your new buyer to assume the note, or get the seller to substitue the collaterial by transfering the note to the second property, which would give him better security as a first lien holder vs. a second lien holder.

You stated you contacted a hard money lender. Try other hard money lenders and see what they would do. I understand there is a number of them in Texas.

If local banks are being to conservative then try a good mortgage broker that has lenders across the country.

One of the biggest problems with your deal getting financed is the loan amount. Most lenders don’t like to mess with small loans like this. That’s why the local banks are usually the best sources for smaller loans like this.

You also stated you had $20k to work with, but you didn’t want to spend any of that for splitting the land because you wanted to use some of that to pay for the repairs. Where’s the problem here? The total repair costs come to $7500 for both houses. That leaves you with $12,500 left to work with. Why couldn’t you pay for the cost to split the land and recoup that when you sell one of the properties? Do you plan to sell these after fixing them up or hold for long term rental income?

If you don’t have a good mortgage broker to work with then give Ed Garcia a call. He can do loans in Texas as far as I know. Maybe he has a lender that would do this deal.

Re: Now What JohnBoy? - Posted by Bruce Lawson

Posted by Bruce Lawson on July 09, 2001 at 04:52:37:

Hi Michel,

What you should do to stop those inquiries is to get a cory of your credit score and take it to the lender and ask them not to pull credit until the deal has been made, then they can pull a copy for their files.

Go to and click on GET YOUR SCORE and complete the privacy act forms and it will give you a great report with your score.


Bruce Lawson