Sometimes the only way to buy a home and get a home loan in our current real estate market is by getting the Seller to carry back a loan and essentially become the bank. Now, we have to ask the question, why would the seller want to carry back financing? The following will summarize why it may behoove the Seller to do just this:
A). The Seller can now actually sell the property.
B). The Seller can make money off the interest that he charges: similar to a bank.
C). The Seller can save or temporarily stave off paying income taxes on the sale by only paying taxes on the money that he actually receives(down payment minus closing costs) including the interest payments.
D). The Seller can resale the trust deed that was carried back to another investor when wanting to cash out of the mortgage....thus, completely clearing him of the entire transaction.
In a similar manner, there are advantages for the buyer when utilizing Seller carry back financing:
A). The Buyer may actually be able to get a loan from the seller that a regular banking institution may not be able to give because of the current credit crunch or strict underwriting criteria.
B). The Buyer can save on loan costs and points when this type of transaction is consummated. Origination points can be waived and there are no lending fees. These two factors alone can save a home buyer between two thousand to ten thousand dollars.
C). The new loan can be structured and designed to match the the ability of the home buyer to pay the mortgage. For example, the Seller can be asked to take back an interest only loan which can save the buyer two to four hundred dollars a month in payments.
D). The Buyer can rebuild or clean up his credit during the period that the Seller is carrying back the financing.
This method of financing will give the Buyer a great opportunity to enjoy home ownership while the Seller can close the book on the sale.
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