Carryback Mortgages

Seller Financing-A Marketing Strategy

The seller can assist the buyer by acting as the lender, financing all or part of the sale. The term given to such seller financing is “Carryback” financing. Literally, the seller is carrying back part or all of the financing on the property instead of the buyer financing with a bank, mortgage company, bank or savings and loan.

When the property is free and clear of loans, seller financing is no problem. If there is a small institutional loan still on the property, it must be assumable and allow additional financing. The real estate agent must ascertain this when property is listed.

Seller financing is a vital part of any successful real estate sales program. If the seller is aware of all of the benefits, it can cut the sales time of a property by expanding the market. Many more buyers would be able to purchase the property.

Many sellers of real estate do not need all of the money that will come from a sale. Often the seller must go out and look for a place to invest the proceeds, to get the best possible return.

Benefits to the Seller in a Seller (Carryback) Financing Deal:

  • Even though mortgage money is relatively cheap and plentiful, some people who would be excellent buyers cannot quality under institutional standards.
  • Some properties just don’t meet institutional standards.
  • A good amount of money from the sale is invested in a note that is extremely safe, secured by the real estate that the seller knows well, the property that was sold. This gives the seller a substantial monthly income.
  • This investment, in addition to being safe, will pay a much higher interest rate than is paid in other investment vehicles. When current institutional mortgage rates are at 6%, the seller can have the proceeds from the sale invested at that rate, rather than 3% at a bank.
  • By taking a small down payment, and carrying the loan, the seller may be able to defer taxes because of qualifying for an installment sale.(IRS Code Section 453)
  • Makes a sale at the top price. When a buyer is able to get excellent terms, usually there is less haggling over the price.
  • The transaction may be lightning fast. With no lengthy loan qualification at a lender, the buyer can be ready to close immediately.
Benefits to the Buyer in Seller (Carryback) Financing

Some of the benefits mentioned above, such as the speed of the closing will also apply to the buyer. Here are some others:

  • Buyer can save cash paid to purchase the home. Seller may accept a lower down payment than required by an institutional lender. Buyer will save a substantial amount by completely avoiding loan origination fees (points) that can amount to thousands of dollars.
  • Although the buyer may be paying the seller a higher interest rate than the seller can get at a savings account at a bank, the interest rate may be lower than the buyer would have to pay on a bank loan.
  • Seller will not charge the buyer an appraisal fee and a variety of additional costs and fees normally charged by lending institutions.

Often an older seller has a free, clear home and would be more than happy to get the benefit of a Carryback loan, but no one asks.

Vacation Homes and Other Solutions with Carryback Financing

Institutional lenders can often get troublesome on certain properties. Vacation homes can be one that is on their problem list. Others include:

  • Land, improvement ratio, e.g. house on 15 acres.
  • Old house without concrete foundation.
  • Zoning, e.g., a single family home on a lot zoned commercial or other non-conforming zoning.
  • Many others………

The good news is that all can be a problem that can be solved instantly with carryback financing.



 

 

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