Why Property Investors Use Seller Carry Back Financing
When it comes to selling a home, there is a lot to consider to ensure the process goes as smoothly as possible. Seller carry back financing is an option that involves the seller being the lender instead of a bank or other financial institution. The seller takes out a second mortgage and the person who buys the home will be paying that mortgage.
The Process is More Personal
When you sell using seller carry back financing, the process is more personal. You take on more of a landlord role, but you are not responsible for maintaining the property. You can do most things a bank can do if things go south, such as foreclosing if the buyer fails to make their payments on the home.
A Promissory Note Gets the Deal Done
When you come to an agreement on everything, both you and your buyer will sign a promissory note. This will have all pertinent information, such as total cost of the home, payments, payment schedule and interest.
Better Return On Your Equity
When you sell a home via seller carry back financing, you can continue to take advantage of the equity you have in the home you are trying to sell. In fact, you can get an even better return on it. How much will depend on a number of factors, such as any home improvements made, the real estate market in the area and the second mortgage payments made.
When you take out a second mortgage, look for the lowest interest rate you can get. You will ultimately determine the interest rate on the loan that the buyer is paying to you. You can use factors like the buyer’s credit score and annual income to determine the rate. For example, if you get an interest rate of eight percent for the second mortgage you take out and the buyer has decent credit and income, you can charge them 10 to 15 percent interest. This increases your overall profit on the home. This is only one part of how you profit on selling a home this way and a way you would not have if the buyer took out their own traditional loan.
Seller carry back financing comes with a number of benefits as you can see. Keep this option in mind if you are trying to sell a home quickly and without the red tape that can come with the buyer getting their own financing to make the purchase.