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Tuesday, June 05, 2007

Seller Financing: Should you do it?

In today’s buyer’s market, I’ve seen an increasing number of transactions with seller financing, or seller carryback as it is known in the mortgage world. A seller carryback can help with selling your home faster if you have sufficient equity in your home. It can also help you with your cash flow and be a creative mechanism for you to earn a better return on your home equity.

A seller carryback is where the seller offers existing equity as a “loan” to the buyer. The buyer still has to obtain a mortgage for a certain portion of the purchase price and may be required to put some money down. For example in a recent transaction the buyer obtained a 80% first mortgage, a 10% second in the form of a seller carryback and 10% down from the buyers funds. This transaction went very smoothly and both parties are set to gain from this arrangement.

Remember that as the seller you get to decide the terms of the seller carryback. In general you need to specify the interest rate, monthly payment, payment terms and the length of the note. You can hold this as a note or as a deed of trust against the property. I would recommend holding it as a deed of trust. You will need to close this through a title company during the close of escrow.

On the cautionary side as a seller be sure you do your homework on the borrower. Preferably you should obtain the borrowers permission to view their credit report, ask for references and also speak with the lender of the first mortgage. Finally, be very clear on when the loan needs to be paid off and how payments are to be received.

If you work with a qualified Real Estate agent then you should have no problems with closing this transaction and you’ll be on your way to increasing your home’s equity in a very short period of time.

Shailesh & Aimee Ghimire of CTX Mortgage in Arizona - Your Mortgage Team for Life!Shailesh Ghimire
CTX Mortgage Co.
(480) 516-1851 / (480) 516-1819
Email me

Posted by Shailesh Ghimire, AZ Mortgage Guru on June 5, 2007 | Permalink


Great article Shailesh. Many home buyers and sellers avoid seller carrybacks because they don't really understand them. But in some cases, seller carrybacks can be a great selling tool in a tough real estate market.

You mentioned the seller needs to do their homework and you are correct. Likewise, the buyer needs to do their homework too. Seller carrybacks can be a great deal, or they can be a total ripoff - it all depends on the seller's terms. Generally, seller carrybacks tend to have a higher interest rate than you could obtain from a traditional lender. But then buyers who look for seller carrybacks tend to be high risk borrowers...and the higher the risk, the higher the rate!

Posted by: Shannon Hubbard | Jun 5, 2007 4:50:24 PM


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