Seller Finance Down Payment Funding

Why is the down payment the hard part?

Seller financing solves the big number. The seller carries most of the price, so you do not need a bank loan for it. But most sellers still want some cash at closing: to pay off a small loan, to cover their own costs, or simply because they want money in hand. That amount, plus your closing costs, is the cash to close.

On many creative deals that cash is the only thing standing between a signed contract and a closed deal.

What are the ways to fund it?

Axelrad's gap and cash advance program is built for the last row. The transactional page describes the same need from the double-close side: on seller-financed acquisitions, "somebody still has to bring the rest of the money to the table," and Axelrad fronts the cash to close so the purchase funds on time.

How is gap funding repaid on a seller-finance deal?

Repayment happens several ways depending on the deal, and on seller-financed purchases it is typically repaid after closing through the seller carry. The exact structure is set with the lender and the seller before closing, which is why the seller needs to be on board with how the deal is put together.

Two practical rules:

1. Do not close a gap-funded deal until the repayment structure is documented.
2. Make sure the seller's attorney or closing agent understands it. Surprises at the closing table kill creative deals.

A worked example

Example only, with hypothetical round numbers. You agree to buy a small rental for $180,000. The seller will carry $155,000 and wants $20,000 at closing. Closing costs are about $5,000. You have $8,000 available.

• Cash needed at closing: $25,000.
• Your cash: $8,000.
• Shortfall: $17,000.

Gap funding covers the $17,000, and the repayment plan, typically through the seller carry after closing, is written down before anyone signs. At Axelrad, gap rates start at 2.5%; the actual cost depends on the deal and is quoted before closing. You then compare that cost with what you would give up by bringing in a partner, or by waiting until you had the cash yourself.

What should you settle with the seller first?

1. The seller-carry amount, rate, payment schedule and balloon date.
2. The exact cash-at-closing figure the seller expects.
3. Whether the seller's note is first or second lien, and what sits ahead of it.
4. How the gap funding is repaid and whether that affects the seller's note.
5. Who will close the deal, and whether they handle seller-financed closings.

Have a real estate attorney draft or review the documents. Seller-financing rules and practices vary by state, and title companies set their own requirements for creative closings.

When should you not fund the down payment?

When the deal only works because nothing is going into it. If the rent barely covers the seller's payment, borrowing the down payment adds cost to a deal with no cushion. The same is true if the seller-carry balloon comes due before you can realistically refinance. In those cases, renegotiate the terms or walk away.

What does a gap lender want to see?

The signed purchase agreement, the seller-financing terms, a closing cost estimate, the amount you are bringing, and the repayment plan. If a double close or assignment is involved, include the end buyer contract too. Having the file complete before you apply keeps the review moving.

Key takeaways

• The down payment on a seller-finance deal is the seller's cash-at-closing requirement plus your closing costs.
• Options: your cash, a partner, a smaller down payment, or gap funding.
• Gap funding at Axelrad starts at 2.5%.
• On seller-financed purchases, gap funding is typically repaid after closing through the seller carry.
• Document the repayment structure and get the seller's agreement before closing.

Short on cash to close?

If your seller-finance deal is signed and the down payment is the missing piece, send it to Axelrad with the seller's terms, and the team will look at gap funding for the shortfall.