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Seller-Assisted Mortgages

In some cases, the seller of the home will offer to carry the loan for the next buyer to assist with the transaction. The seller who offers to carry the loan for the next buyer will either cover the entire loan or will cover only a portion of it. A seller-assisted loan will be a part of public record to cover the seller. This loan will be recorded as a home loan, land contract, lease purchase, or trust deed.

Benefits for Sellers

If a buyer cannot obtain a mortgage for any reason, whether it be for financial reasons, poor credit or the interest rates are too high, the buyer may ask the seller to carry the loan until further notice. With this type of loan, there are many different options in attaining the end result. If the home is owned out right without any loan from the bank, the seller can essentially carry 100% of the loan. Another option could be, the potential home buyer can take a conventional or adjustable rate mortgage loan for a portion of the home and ask the seller to finance the rest of the loan amount.

If any of the options above do not match what the buyer and seller are looking for, there is another option they may decide on. If the home has a mortgage, the seller can allow the buyer to take over the loan payments, however, the loan will stay in the name of the seller until a new loan can be taken out for the buyer.

Benefits Seller Assist

There are many benefits for the seller who agrees to carry a loan for a potential home buyer. The following are the most common reasons sellers choose this route:

  • The seller can request a higher sale price of the home.
  • The property is non-conforming and a bank or credit union will not accept the loan.
  • The seller has the intent of a passive monthly income in the form of a revolving mortgage payment.
  • The seller will be able to claim the home on their next tax return.
  • The seller will be able to obtain a higher rate of return compared to other investment options.
  • The seller can defer some of the financed amount to avoid getting capital gains.
  • If the home needs to be sold and the market is down, this can make the home look more attractive to the potential home buyer.

Disadvantages of a Seller-Assisted Loan

There are disadvantages of this program, but they are few and far between. If the buyer ever defaults on the loan, the seller’s credit is at risk. If default happens, the seller will in turn need to initiate the foreclosure process and hopefully will have enough equity in the home to make up for back payments, closing costs, or commissions.

Seller Carry-Backs Converted to Cash

A seller will always have the option to convert the loan into cash. The seller should keep in mind though that he/she could lose up to 10% to 30% of the unpaid balance.

Benefits of a Seller Carry-Back for Buyers

There are many benefits for buyers as well as for sellers. Benefits for buyers are as follows:

  • Reduced qualification
  • Personalized financing
  • Negotiable down payments
  • Faster closing
  • Lower closing cost

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