Seller carryback financing refers to an act in which a seller doubles as the bank or Lender in possession of a second mortgage on a property. The buyer makes monthly payments in addition to their first mortgage. This increases the house value and makes it more appealing to buyers. The buyer and seller determine the mortgage rate on a seller’s carryback, considering the down payment and the buyer’s credit profile. Secondary financing already comes at a premium, and if it’s the only option available from the seller, it’ll only get more expensive.
The interest rate on a seller carryback loan can range from 8 to 15 percent, and the terms can vary just like any other lender-based loan. For example, a buyer will obtain an 80 percent first mortgage from a mortgage lender or a large bank, put down 10%, and “carry back” the remaining 10% with the seller. This is because not all mortgage lenders allow seller carryback financing. This is why it is important to consult with a mortgage broker or loan officer first. To prevent predatory lending, they may also limit the type of financing you offer or cap the interest rate at a certain percentage. Be wary of Seller Financing Restrictions.
Before you put it in writing, request that the buyer show you their loan approval and credit report. According to Freddie Mac, any financing provided by the property seller that is more than 2% below market rates for second mortgages is considered a sales concession.
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