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