Should I consider a Seller-Financed Mortgage?
Maybe you’ve heard of seller-financed mortgages, or owner-financed home sales, but aren’t sure if they’d be appropriate for your own sale. Below are some facts you should know if you’re considering using a mortgage funded by the seller of the home.
- The seller should own the home outright before considering an owner-financed mortgage: Most bank-held mortgages include a clause stating that the loan is due upon sale of the home. What this means is that, if the bank discovers that the seller has sold the home (even if the seller’s name continues to appear on the mortgage), the bank has the option of making the mortgage due immediately, and to foreclose on the home. So, it’s a better idea for a seller not to finance a buyer’s mortgage unless they own the home free and clear.
- A seller-backed mortgage can be an appealing option to buyers who aren’t traditionally good candidates for a mortgage: In a housing market that isn’t conducive to quick home sales, you may have had a home on the market for a long time. Some buyers actively seek out owner-backed home sales due to the fact that they know they can afford a home, but they know that something on their credit will keep them from qualifying for a loan. It could be that they recently completed graduate school and got a good job only recently, or spending by a former spouse caused a bankruptcy to appear on their credit score, but neither fact is an accurate reflection of their current ability to pay. A seller funding the mortgage can help you move on to a new home more quickly. Many seller-financed mortgages have short terms, as well, since both parties assume that the buyer will be able to procure more traditional home financing by the time the short term has expired by virtue of having improved their credit, or due to an increase in the value of the home.
- Sellers should take pains to treat the sale as a bank would: If you’re selling your home and considering backing the buyer’s mortgage, take the same care to vet the buyer and protect yourself as would the bank. Ensure that you conduct a thorough credit and background check of the proposed buyer. Hire an attorney whose experience and pool of knowledge you trust to create a reliable agreement between the parties and walk you through the sale process.
If you would like to consult with a knowledgeable Maryland real estate attorney about participating in a seller-backed mortgage, contact the Annapolis Law Offices of Matthew S. Evans, III at 410-626-6009.