Not long ago we went through a period when lenders were able to qualify just about anyone for financing of a new home. Now, primarily because of the large default rate, lenders are requiring higher credit standards and fewer people can qualify for financing.

A buyer may not meet the financing criteria because he:

• Doesn't meet the lender's debt to income (DTI) ratio,
• Has a spotty credit history and as a result a lower FICO credit score,
• Can't come up with enough cash for the down payment.

There are also some other buyer benefits:

• The loan can be approved with less than perfect credit because you're dealing with the seller's requirements and not the more stringent standards of a lending institution,
• You need less cash to close
• Can become the owner of a property that was out of reach financially.

Sometimes the seller doesn't see the advantages and needs convincing. Try these points:

• Seller can ask for a higher price for the property,
• A cash stream is created...income in the form of payments are collected each month,
• Seller's income from the second is paying larger interest dividends than placing a cash lump sum in an investment account at the bank that earns possibly only 5-6%,
• The loan can be sold for cash if desired.

How do these seller carryback seconds work?

The interest rate and the term for the second loan are agreed upon between the buyer and seller. These figures usually range between 8-15% for a period of 5-7 years (remember these figures are agreed upon between the buyer and seller).

This can be a win-win-win situation:

• The seller is able to sell his property,
• The buyer, who may not have been able to qualify for financing before, is able to become an owner,
• As the agent, you have made a commission you might have otherwise lost!

© Copyright 2007 by Lynnette Phillips