What’s the best way to structure a seller financing deal? Is seller financing a smart way to buy rental properties? That’s the first topic we’re diving into on this Q&A episode of Investing in Real Estate!
On today’s show, I’m taking three thought-provoking questions from three great listeners. Today’s topics include seller financing, first-lien HELOCs, and preparing for loans. Click play to hear my answers to your investing questions!
On this episode you’ll learn:
- What to consider about seller financing.
- How a first-lien HELOC is used.
- How to prepare for getting a loan on a rental property.
What to Consider About Seller Financing
Seller financing can be a great option for financing your rental properties. I would suggest reading Susan Lassiter-Lyon’s book, Getting the Money. Though the book is specifically about finding private lenders, it contains a lot of invaluable information you can use to negotiate a deal. One of her top points that stands out to me is to stray away from any sort of prepayment penalty. You’ll also want to be sure that you use a promissory note and a mortgage with your title company. Seller financing can be extremely powerful on a rental property, but I would also suggest considering non-recourse financing as another method for growing your portfolio.
How a First-Lien HELOC Is Used
A home equity line of credit is often referred to as a second mortgage, because it is a second loan based on the equity of your home. You can even use a HELOC to pay off your mortgage, like we wrote about in our book. Once your mortgage is paid off, the HELOC would be considered first position (instead of standing as the second mortgage). To my knowledge, you cannot take out a first-lien HELOC without first having a traditional mortgage.
How to Prepare for Getting a Loan on a Rental Property
Different banks will have differing underwriting requirements (which is why it can be helpful to shop around). In general, banks are going to want to look at your current investments, debt-to-income ratio, and credit score. You’ll want to be sure not to take out any new loans or make big purchases while going through the lending process. See my video here on the do’s and don’ts of getting a loan.
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The Power of Non-Recourse Financing for Building Wealth
Getting the Money by Susan Lassiter-Lyons
How to Pay Off Your Mortgage in 5 Years
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