In real estate transactions, homebuyers have to obtain some kind of financing. Typically, this additional monetary support comes from a third party institution like a bank or mortgage lender. However, sometimes the seller may also offer financing directly. There are many options available depending on the specific need and situation. Here is a basic overview of seller financing you may encounter in your real estate transactions.
All-Inclusive Mortgage
An all-inclusive mortgage is also sometimes called an all-inclusive trust deed or AITD. The seller holds the promissory note for the entire balance of the mortgage. If there is a down payment, that amount is subtracted from the total.
Junior Mortgage
A junior mortgage is financing meant to cover any part of the purchase price that another mortgage lender won’t. For example, many lenders are hesitant to finance over 80% of the home’s price. The seller can cover the remaining 20% by holding a “junior” mortgage on the property and then receive the proceeds from the buyer’s first mortgage. This type of financing can smooth out the sale of the home but leaves the seller at risk if the buyer defaults on their first mortgage.
Land Contract
A land contract concerns the title transfer part of the home selling process. Rather than give the title to the buyer outright, the seller can give the buyer an “equitable title.” This is a form of shared ownership until the buyer pays off the complete purchase amount. Instead of paying mortgage payments for that time period, the buyer pays the seller directly as if paying them rent.
Lease Option
Lease options are also similar to rental agreements but include a written agreement from the seller to sell the property in full by a determined deadline. The seller can “lease” the property to the buyer and give them time to pay toward the balance while also letting them lock in a purchase price. You can compare this type of financing to a typical “rent-to-own” agreement, though there are more specific legal details involved.
Assumable Mortgage
In an assumable mortgage, the seller assumes the place of the buyer in their existing mortgage agreement. This only applies to certain types of mortgages, like some FHA and VA loans. However, it means the seller takes the buyer’s place in the mortgage and assumes financial responsibility per the existing terms.
Few sellers want to take on the risk of seller financing, but these options can be extremely helpful in certain sales and situations. It’s always a good idea to consult a financial advisor or real estate attorney to decide what the best financial strategy is in selling a property.
About the Author
Jamie Jamieson
Professional Association National Association of Realtors (NAR) New York State Association of Realtors (NYSAR) Hudson Gateway Association of Realtors/ Hudson Gateway Multiple Listing Service Education I hold an A.A in Italian Studies and an A.S in Accounting as well as being one of few students accepted into the Cambridge University International Student Study Program abroad as a returning student in 2011. Community Involvement I am proud to serve on the Home & School Board for St. Augustine School in Ossining and maintain the role of a Girl Scout leader. I am an active member of the community assisting in a variety of fundraising efforts. Personal I am a young and energetic agent who prides myself on providing personalized service with honest representation whether you are buying or selling your home. My expertise of the river towns, attention to detail and excitement for real estate are a few of the many assets I will bring to you. I will utilize my eagerness and market knowledge of the area to build lasting relationships with all of my clients that will extend far beyond the closing table. Be at ease from start to finish with my help. In my spare time, I love exploring the Hudson Valley with my husband, three children and our dog, Pippin. I love scoping out the infinite restaurants, farmers markets and other fabulous activities this exciting county has to offer. Experience Before joining William Raveis Legends Realty Group I started my career with Hudson Homes Sotheby's International Realty team. Prior to real estate, I had a remarkable 15+ year career in Restaurant Management/Hospitality including Ruth's Chris Steakhouse, Rivermarket and several establishments in Newport, Rhode Island. My experience in that field provided me with the foundation of excellence in customer service. Areas Covered All of Westchester County and parts of Putnam County.