Pinetop White Mountain Blog

Good Morning Everyone,

I have posted in the past that a Seller Carry might be an option for a seller if they do not have a loan against their property or they have a property that will be difficult to finance.  Today I want to address it from the Buyer's side.

Many Buyers in today's market are looking for a home where the seller will carry the note.  Either because they have credit issues, don't have longevity on the job, or other reasons.  It can be a good option.  However there are some issues that the buyer needs to be aware of that might not make this option as appealing as it might appear on the surface. 

To begin with, when a Buyer asks the Seller to Carry a Note, they are in essence asking the Seller to act as a Bank.  This means the seller may require the same kind of documentation a Bank would if the buyer were applying for a mortgage through a Bank. 

In essence, a buyer should expect that they are going to be asked to prove credit worthiness, verify that they have liquid assets sufficient to cover the down payment, and provide references from employers or others who can verify the Buyer's ability to repay the loan.  Just because there isn't a Bank involved in the transaction does not mean that the Buyer can get in to a property without proving their ability to repay the loan. 

A Seller Carry is a loan.  The Seller is assuming the same risks a Bank would in agreeing to fund the property and will have to go through the same foreclosure process that a bank would if the buyer does not pay as agreed.  

A Seller Carry is not a Lease/Option or a Lease/Purchase. The Buyer is taking a loan against the property the only difference is that the bank is the Seller.  If they don't pay, they are going to face the same processes that they would if they defaulted on a loan through a Bank.  When a seller carries a note the buyer will be issued a Deed of Trust and a Note, the same as they would if they were getting the funding through a bank.  They may be required to pay impounds to cover taxes and insurance when they come due.  The only true difference is that they will make their payment through a servicing agency and the monthly payment will be disbursed to the Seller rather than a Bank.

It is also important to understand that the down payment requirement is going to be high, the interest is likely to far above what they might be able to get through a traditional mortgage, and the term is likely to be much shorter and may have a balloon payment due in a very short period of time.  This means that in anywhere from two to five years the Buyer is going to have to be able to repay the entire balance of the loan.  Probably through refinancing.  Most sellers will not carry long term.

A Seller Carry is intended as a Short Term solution to buying a property because the Seller is looking at the income and down payment from an investment standpoint.  It is similar to a rental income property except that the Buyer is buying the property.  The Buyer is obligated under the same strictures that they would if they were getting a loan through a bank.  It can be an option, but it is not always the best option for a Buyer or a Seller.

Hope this helps to clarify the issue a little for both parties.  It is a complex situation and one that is easily looked upon as an easy way for a Buyer to buy.  The reality however is quite different.

Hope this helps.  Have a great day.  Until next time....

Sandra Paulow, Associate Broker, GRI, SFR  (928) 242-0300