Seller carry back mortgages refer to a type of real estate transaction where the seller provides all or part of financing to the buyer. Typically, sellers finance between 10- and 30-percent of the purchase price and buyers obtain the balance of financing through a lending institution.
Seller carry back mortgages create a win-win situation for both buyers and sellers. Carry back financing is a good alternative for people with bad credit or those who do not possess sufficient funds for a large down payment.
When sellers provide mortgage financing they retain ownership of the deed of trust until the loan balance is paid in full. Most sellers require a down payment before entering into a mortgage finance agreement. Much depends on how desperate they are to sell the property.
When sellers partially fund mortgage loans they become the second mortgage note holder. If the buyer defaults on the second mortgage, the real estate can fall into foreclosure; placing the seller at risk and unable to collect the unpaid balance.
When buyers enter into seller carry back agreements they also assume risk. Should the seller default on mortgage payments, the buyer runs the risk of losing all vested monies. Therefore, it is crucial to execute legal documents describing seller financing terms.
Seller carry back home mortgages generally extend for two to five years. This provides buyers time to improve their fico score or establish a credit history through repayment of loan payments. Buyers should pay mortgage payments via personal checks which can be verified through lenders.
When buyers do not have a personal checking account they should purchase a certified or cashier check from a bank. Money orders should be used as a last resort. Money order payments are more difficult to verify unless the seller provides adequate documentation that payments were received in a timely fashion. Sellercarryback mortgage payments should never be paid in cash unless the seller provides a notarized statement.
Seller carry back mortgages offer financial benefits to both parties as long as real estate contracts are carefully crafted and legally executed. While rules and restrictions apply, seller financing provides room for flexibility and can be arranged to suit buyers and sellers needs.
Just as with conventional loans, sellers are allowed to charge interest on seller carry back trust deeds. Each state implements usury laws which specify the maximum rate of interest private lenders can charge. Sellers providing carry back financing must charge a lower rate of interest than mortgage lending institutions.
Late fees are regulated by usury laws and cannot exceed 10-percent of the monthly installment. Charging higher interest or late fees than allowed by usury laws is against the law and can result in jail time.
Executing a legally binding seller carry back mortgage requires the services of a real estate lawyer. At minimum, the attorney should review real estate contracts to ensure they abide by state laws.