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Question by Viridistori: Financed by the seller? Sellers will help with mortgage?
Sometimes I read some listed homes that say stuff like “Finance by the seller” or “Sellers will help with mortgage.”
I just don’t get the idea clearly. Can someone explain simply what is it means? If the seller supposed to recieve the money cash, how can he pay or help with mortgage?
Answer by mark_harrison_uk2
Most sellers do, indeed, just want to receive the money when they sell their house.
A small number, however, aren’t worried about getting a cash lump sum straight away… they will want SOME cash at time of sale, but might be prepared to offer you effectively a “second mortgage” on the property.
Example – suppose the property you want to buy is $ 200,000 and you have $ 20,000 in cash saved up as a deposit.
You COULD borrow $ 180,000 from a normal lender, but you may find that, in today’s climate, you don’t qualify to borrow that much.
Suppose you could borrow $ 140,000 from a lender, that’s all…
In this case, you MIGHT be able to borrow the extra $ 40,000 from the seller (at interest, of course.)… So you end up owing $ 180,000…. split $ 140,000 to the main lender, and $ 40,000 to the seller.
Whether the seller is ABLE to do this depends on how much they need… if they bought the house a long time ago, and only owe $ 50,000 on the mortgage, then getting $ 160,000 now (the deposit plus the $ 140,000 you borrow from the bank) might be all they need… and they might prefer to have the steady income of a mortgage payment from you each month!
Be careful doing this kind of deal – if a bank will only lend you $ 140,000, then that’s because they’ve assessed that you’d have trouble paying back more than that… unless you are REALLY sure you know what you’re doing, then the last thing you want to do is borrow too much.
Beware of using this technique to build a rental portfolio in today’s market – it worked well as a way to build up big portfolios at a time when the markets were booming (borrow as much as you can to buy stuff that’s shooting up in value is a good way to make money)…. but in a slump it’s seldom a good idea to borrow more than you have to.
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