Seller Financing in East New York, Brooklyn: Frame and Brick Homes

Today's bank rate vs. a typical seller-finance rate

When a East New York owner sells with financing, the owner becomes the lender. Most owners price that loan off what banks charge: homeowners typically ask about 2 percentage points more than the national average 30-year rate, with a 5-year balloon payment, or an extension if both sides agree to one in the contract. The numbers below update every week.

About East New York

East New York runs east from Brownsville toward the Queens line, and south from the Broadway Junction area toward Jamaica Bay and the Belt Parkway. Much of it was built out in the first decades of the 1900s as rows of modest frame and brick houses, many of them two-family from the start. Later decades added large apartment complexes such as Starrett City near the bay, and more recent infill brought rows of newer homes on lots that had been empty for years. The result is a wide, low-rise neighborhood where the typical building is a house, not an apartment block.

In 2016 East New York became the first neighborhood rezoned under the city's Mandatory Inclusionary Housing program, opening Atlantic Avenue and other corridors to larger apartment buildings with required affordable units. Side streets were mostly left as low-rise homes. Day-to-day shopping concentrates on Pitkin Avenue, Liberty Avenue, Fulton Street under the J train, and the Gateway Center mall off the Belt Parkway. Broadway Junction, where the A, C, J, Z and L meet, sits beside the LIRR East New York station, which makes the northern part of the neighborhood one of the better-connected spots in eastern Brooklyn.

Getting around: Broadway Junction (A, C, J, Z, L), the C along Pitkin Avenue to Euclid Av (A at Euclid), the L and 3 to New Lots Av, and LIRR East New York

What you will find for sale

• Detached and semi-detached wood-frame houses from the early 1900s on narrow lots, many now covered in vinyl or aluminum siding and set up as two-family homes.
• Attached brick two-family rowhouses with front stoops or small porches, common on the side streets between Atlantic Avenue and Linden Boulevard.
• Newer brick homes from the 1980s through the 2000s on formerly vacant blocks, including Nehemiah single-family rowhouses and two- and three-family houses with parking in front.
• Mixed-use buildings with storefronts and one to four apartments above, concentrated on Pitkin Avenue, Liberty Avenue and Fulton Street.

Why seller financing fits East New York

A lot of East New York housing is the kind of property that makes a bank appraiser and underwriter cautious. Century-old frame houses can have outdated wiring, settling foundations or additions that never got a permit, and a lender may want repairs finished before it will close. Buyers here often earn from construction, trucking, delivery or food service, sometimes paid partly in cash, and many are first-time buyers without a long credit history. A seller who knows the house can weigh the full picture, such as rent from the second unit and the buyer's actual monthly income, rather than a strict checklist.

Many owners here bought decades ago, kept rents modest, and now hold houses with no mortgage at all. Some are ready to relocate or retire out of state but would rather keep a steady monthly payment than accept a low cash offer from an investor. Estate sales are also common, and heirs who share ownership can each receive a portion of the buyer's payments over time. For a two-family frame house with deferred repairs, the pool of buyers who can pass a bank's inspection is small, which gives owners a practical reason to carry the note themselves.

The 5 terms you will negotiate

Every owner-financed deal comes down to five numbers. Here is what each one means, what is typical in New York City right now, and how they work on an illustrative 2-family wood-frame house in East New York.

How to buy owner-to-owner in East New York

1. Find owners open to financing. Start with East New York properties on the SellerFinanceNYC live map, where every listing is checked against ACRIS deed and mortgage records. Owners who have held a building for decades with no open mortgage are the most likely to carry a note.
2. Offer on all five terms at once. Price, down payment, rate, amortization and balloon trade off against each other. Put them in a short written term sheet so nothing gets lost.
3. Hire a New York real estate attorney. Your attorney drafts or reviews the contract of sale, the promissory note and the mortgage, and confirms the seller has no existing loan with a due-on-sale clause. See our guide to finding an attorney.
4. Do local due diligence. In East New York, check:
   • The 2016 rezoning changed what can be built along Atlantic Avenue and nearby corridors; check the current zoning before buying a lot or building you plan to expand or redevelop.
   • Southern blocks closer to the Belt Parkway, Spring Creek and Jamaica Bay can fall inside FEMA flood zones; look up the exact address on the flood map and price the insurance.
   • Parts of the area near Atlantic Avenue and the rail lines have an industrial past; a Phase I environmental review makes sense for former auto shops, gas stations or warehouse lots.
   • Frame houses often have additions, enclosed porches or basement apartments built without permits; compare the house to its Buildings Department records and certificate of occupancy.
   • Ask for the HPD violation history and search for unpaid Buildings Department and ECB penalties, since unpaid city charges can turn into liens on the property.
5. Close like a normal sale. The deed transfers to you, you sign the note, and the seller's mortgage is recorded with the City Register. Buy title insurance, and consider a loan servicing company to collect payments and escrow taxes and insurance.
6. Plan the balloon from day one. Use the five years to build a payment record, fix up the building and document income so you can refinance well before the balloon is due.

Questions buyers ask about East New York