Obtaining owner financing is might be an option for buyers who are unable to meet strict mortgage qualification guidelines. It consists of the seller assisting the borrower by financing all or part of the home. The buyer makes payments to the seller. There are different financing techniques a seller can use to help the borrower buy the property.
All-Inclusive Trust Deed
An all-inclusive trust deed is a type of secondary financing. In an AITD, the seller's existing mortgage remains in place. The buyer and seller agree to a price reflecting the seller's mortgage balance and seller's desired profit. All terms are included in a promissory note. As payments are made to the seller, it is his responsibility to pay the lender to ensure the primary mortgage remains current. If the buyer defaults, the seller is still required to make the mortgage payments.
In a land contract, also known as a contract for deed, the buyer agrees to purchase the home at a set price and the seller holds the deed until the agreement is satisfied in full. The buyer pays the price, less the down payment, plus a monthly interest rate to the seller over a specified number of years. After the final payment is made, the buyer receives the deed to the property and full ownership rights.
Carry-back financing is an option when the borrower can't obtain full financing. The seller acts as a lender and offers a second mortgage for the difference in the loan amount. The seller immediately receives the proceeds from the buyer's loan, but accepts the risk of the buyer defaulting on the secondary loan. If the borrower stops paying, you have the right to act as a lender and foreclose. In a typical carry-back situation, the buyer secures 80 percent financing through a first mortgage with 10 percent down and the seller carries the other 10 percent.
A buyer may also have the option to take over the mortgage payments. An assumable mortgage is a financing arrangement in which the outstanding mortgage balance and terms are transferred from the current owner to a new buyer. This option is attractive to buyers who can't obtain full financing due to credit or who face a higher interest rate. If the home's sale price is more than the balance remaining on the loan, the buyer may need to pay the difference in a down payment or another mortgage. Not all mortgages are assumable. Would-be buyers must meet loan qualification guidelines, including credit and income requirements.