Seller Carry Back Loan

Seller Carry Back Loan

Sometimes, the seller may offer to make a loan and carry a second mortgage on the subject property in order to help the home buyer purchase the home. This is known as a seller carry back or seller assisted mortgage. With a seller carry back mortgage, the seller will finance the purchase of the home and keep all documentation of the terms and conditions of the mortgage.

Most of the time, seller carry backs are recorded as public record in the form of a lease purchase, mortgage, trust deed, or land contract. The carry back will be secured with a promissory note.

Advantages of Seller Carry Back Loans

If interest rates are high or the home buyer wants to forego the lending requirements of a bank or credit union, a buyer may ask a seller to finance the purchase of the home. If the home is owned free and clear, the seller can finance 100% of the purchase if they wish, or opt to partially finance the amount of the home.

LTV

Home Buyer Advantages

There are many reasons why home buyers might want to request the seller to finance the home including:

  • Easier qualifications. The seller may request a credit report, but the requirements are usually less demanding than those of a traditional mortgage lender.
  • Flexible financing options. Buyers can choose from any number of payment options.
  • Negotiable down payment. Depending on what the seller wants, the down payment can range from large to zero down, or even be rolled into the loan.
  • Quick closing process. You won’t have to wait for lender approval and closing the sale is generally faster.
  • Cheaper closing costs. Buyers do not pay discount points, processing fees, or origination fees.
Seller Carryback

Seller Benefits

The seller may let the buyer takeover payments if there is a current mortgage on the property without the loan transferring names. There are many other reasons why sellers may decide to assist in financing the mortgage:

  • The real estate market is soft and the seller carry backs can increase the number of potential home buyers.
  • The buyer cannot qualify for a conventional loan.
  • The seller wants regular monthly income.
  • The property is not applicable for a traditional loan.
  • The seller can receive a higher selling price in exchange for helping finance the purchase.
  • Seller carrybacks offer the seller improved return rates compared to selling to buyers with traditional loans.
Seller Carryback Loan

Disadvantages to the Seller

There can be some disadvantages to a seller carry back loan. The home buyer might default on the payments for any number of reasons which can force the seller to foreclose on the home. After foreclosure, the seller may not have a lot of equity left in the home after making payments for closing costs and third party fees. The seller will have money on the line that is tied up to secure the home.

Converting Seller Carry-Back Loan Into Cash

A seller carry back may be converted into cash. Many private investors are interested in buying seller carry back instruments, usually at a discounted price. Sellers can lose 10-30% of the unpaid balance, depending on several factors such as seasoning time, late charges, and LTV.

Home Buyer

For more information on Seller Carry Back Loans, contact US Mortgage Lenders today!855-751-6422

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