How To Do Seller Carry-Back Mortgage And Subordination - By Example

In a slow housing market, using owner financing as a tool can help you reach more buyers than without owner financing. You have more flexibility. You can sell your home to those who can get a mortgage loan. You can sell it to buyers who cannot or don’t want to get a loan from a lender. You can do zero down or non-zero down owner financing based on your situation.

In my previous blog, I wrote about wraparound mortgage by example. Today, I am going to talk about another important technique of owner financing by example, that is, seller carry-back mortgage.

Definition of seller carry back mortgage:

Seller or owner carry back mortgage is a contract whereby the seller of a property provides financing, sometimes as part of an assumable mortgage.

The seller loans the money to help homebuyer in the purchase of the subject property. The loan is secured by a mortgage on the property being purchased. The seller places a lien on the property. This mortgage is called seller carry back or purchase money mortgage.

A seller carry-back mortgage can be at any position among the liens on the property, that is, first, second, and so on. It is totally based on your situation whether you want your mortgage at first or second, or third position. If you take your mortgage as the junior position (second, third), then your mortgage is subordinated to the senior or first mortgage. This is so called subordination.

Unless you have a house free and clean of debt, you usually have to subordinate to the senior mortgage.

Following example is about seller-carry back and subordination:

You have a home worth $200,000 and have a loan balance of $140,000. You have placed your home on the market for four months now and there is not offer. You decided to provide owner financing to attract more buyers.

One of the homebuyer offers you that he will get 80% mortgage loan from a lender and the rest of the 20% of purchase price will be the seller carry-back mortgage subordinated to the first 80% mortgage from the lender.

The buyer’s offer is like this:
Sale price: $200,000
First loan from lender: $160,000
Seller take-back, 2nd:   
      $40,000 at 8% interest -30 yrs term

By offering this, the homebuyer creates a zero down buying offer. You counter back several ways.
You can counter-offer like this:
Sale price: $200,000
First loan from lender: $160,000
Seller take-back, 2nd:    
     $20,000 at 9% interest 30 yrs with a 2 yr balloon.
Down pay: $20,000

Or you can counter offer like this to creates zero down:
Sale price: $200,000
First loan from lender: $160,000
Seller take-back, 2nd:   
      $40,000 at 9% interest -30 yrs term –2 years balloon.
      With a collateral from a property owned by the buyer to secure your mortgage.

The Benefits for buyer:
1) Easier for buyer to get a loan for 80% of the loan to value than to get a loan for 90% or 100% of loan to value.
2) Possible no money down deal.

Benefits for you:
You may get a full sale price and sell your house fast.

Major risk for you is the buyer’s default on payment.

There are several ways to prevent buyer’s default on payments. If you don’t want to hold this mortgage, you can sell the mortgage note at a discount and at the closing. You can subscribe my free home selling guide to know how to sell your note now here:

If you want to hold the mortgage, then you should take the measures to prevent this happening. For information on how to prevent buyer’s default on payments, please read my previous blog at
http://besthomesellingtips.com/2007/07/29/how-to-protect-you-from-buyer-default-when-selling-your-home-with-owner-financing/

Always remember not to do it by yourself when it comes to do owner financing, use a [tag-tec]real estate attorney[tag-tec] to do it for you.

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Enjoy your reading.

 For more home selling tips on related topics on owner financing, read my home selling blog by clicking following  link

http://besthomesellingtips.com/category/home_selling_by_owner_financing/

 

 

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