Seller Assisted Mortgages (Seller Carry Backs)

For a buyer who is looking to purchase their first property, doesn’t have excellent credit, or is not able to provide proof of steady income, it might be difficult to secure a loan. The seller assisted mortgage, otherwise known as a seller carry back, is an interesting option for buyers who are looking for non-traditional financing. With this type of loan, the seller becomes the lender, or acts as the bank. The terms of the loan are agreed in advance between the seller and the buyer. The seller can determine the interest rate, the length of the loan, and set the amount required for a down payment.

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Pros and Cons for the Buyer

The largest benefit for the buyer is that there are fewer restrictions to qualify for a seller assisted mortgage. The seller sets the terms of the loan and can approve a buyer on a case by case basis without the strict requirements of a traditional lender. With this type of loan, there are reduced closing costs as well. The buyer won’t need to pay an origination fee or discount points to the bank. These loans typically close faster than traditional loans because there are only two parties involved.

The seller and buyer can negotiate the terms of the down payment as well, and although some sellers will ask for a large down payment, others might be more flexible. If the buyer is not able to come up with the full down payment upfront, the seller might agree to accept several partial payments over a set time period.

There are a several drawbacks to this type of loan. The seller will usually ask for a higher interest rate as a tradeoff for taking on the risk of financing the loan themselves. They might also require a larger down payment upfront. Seller assisted loans are often shorter-term loans (ten years or less) as well.

A Seller Might Prefer to Finance the Loan if:

  • The seller owns the house outright and wants to receive monthly income without the risk of renting out the property.
  • The property needs significant repair and renovation. In this case, the seller probably understands that it will be difficult for a buyer to get financing and might choose to help finance the loan themselves.
  • The seller is managing their investments and wants to avoid being taxed on their capital gains.
  • They are comfortable taking the risk of a buyer defaulting on a loan and know that they can foreclose and reclaim the property if they run into this situation.

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