Another way to avoid dealing with the usual lending sources is to have the seller carry back financing. This can be done pretty easily if the seller owns the property outright, that is, the seller has no mortgage loan on the property. While this is not the norm, it does happen often enough. In a case like this it is possible to make a deal with the seller in which you give a small down payment or maybe even no down payment at all. The seller will receive payments from you at a stated rate of interest for a specified period of time. The terms may include a balloon payment that is due at a certain date. An example would be that you buy a house for $100,000 with a 10% down payment ($10,000) at an interest rate of 8% for 30 years with a 5-year balloon. In plain English this means that you give the seller $10,000 when you buy the house and then make payments to him based on a $90,000 mortgage with a payment term of 30 years and an interest rate of 8%. The 5-year balloon means that the remaining balance of the loan is to be paid at the end of 5 years. You can pay the mortgage off by selling the house or refinancing the loan prior to the due date of the balloon payment. 

There are a number of reasons why a seller would be willing to carry back financing on the house. If the house is in poor condition, it will be easier for the seller to find a buyer if he offers a financing option. The seller could be in a position where the thought of receiving a monthly check is appealing. It could also be a benefit for him in terms of taxes if the transaction is treated as an installment sale. When looking at properties it is always a good idea to ask if seller financing is available.

It is also possible for a seller to carry back some financing even if he does have a mortgage on the house. If the seller has a large amount of equity in the property he may be willing to take some or all of it in the form of a mortgage. Let's use the same example of a $100,000 purchase price but this time we'll assume that the seller owes $50,000 on a mortgage. The buyer could obtain a first mortgage loan for $50,000 and the seller could carry back a 2nd mortgage for all or part the balance. The buyer would make two payments each month, one to the primary lender and another to the seller. A seller 2nd is actually quite common in cases where there is a lot of equity involved. The primary lender may have rules concerning how much a seller may carry back. Lenders tend to be concerned if a buyer has little or no money of his own tied up in a deal.

Stay Tuned for More!

Vicki Irvin

Real Estate Investing Queen

http://www.mdfreecd.com

http://www.therealestateinvestmentqueen.com