The most common form of Seller or Owner Carry back is when you bring in your own financing on a first mortgage and an owner carries back a second or third mortgage for the remainder of the purchase price. It should be noted that in the current residential real estate market this is becoming increasingly harder to find. This is a combination of both the financial markets and real estate markets declining. This creates a situation where neither lenders or owners want to offer a seller carry back.
That being said there are still opportunities out there for carry backs, these usually come with more experienced sellers and well funded sellers such as buying a new
home from a builder. You will find these advertised as ‘owner will carry a second’, ‘owner will carry a note’ or ‘seller will carry paper’.
The Benefits of a Seller Owner Carry Back for Buyer?
Can’t get conventional mortgage. Many times a seller carry back comes in handy when the buyer can’t quite get approved for a conventicle mortgage. With offering a lower loan to value for the lender is sometimes enough to get the approval.
Lower down payment requirements Instead of coming up with a full down payment of say 20% for a traditional 80% mortgage, as a buyer you can come up with 10% and negotiate a seller carry back of 10% or even 5% (more on this in my book).
Less Hoops for Approval If you credit is a little banged up and you lack a large down payment getting a traditional mortgage can be full of hurdles and roadblocks. With a well negotiated seller carry note your approval for the first mortgage is typically easier and your down payment requirements are lower.
Seller carry backs are not as common as they used to be. This is mainly due to the fact that they have been abused the last 5 or so years. Expect to see an reemergence of owner carry notes here in the next few years. The reason for this is the increasing difficulty in obtaining even common sense financing like 70% loan to value mortgages. Unless you are selling an existing property often times most buyers don’t have 30% to put down.
What are the Benefits for the Owner on a Seller Carry Back?
Opens up the pool of buyers Just the fact that an owner will accept a carry back opens up the potential pool of buyers. It also makes it more likely than the other forms of owner financing that an agent will get involved in showing the property. This fact alone as explained in my book is many reasons why if an owner is selling a property in this market they should give the option of a seller carry back.
Residual Income. Many times if a owner carry note is structured correctly this can equate into residual income for the seller for years to come. Many sellers like this option because it gives them an income stream and none of the headaches of being a landlord.
Seller carry backs for the owner of a property can be a extremely useful tool in enlarging the pool of buyers and creating long term monthly profit. Sellers do have to be careful that they understand the lending laws, both local and federal and that they understand that in the event of non payment the process is typically longer and more costly to get fair payment back. In many events this involves a foreclosure proceeding.
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