amateur question. - Posted by Javier (Michigan)

Posted by Stacy (AZ) on October 09, 1998 at 17:17:22:


In general terms, the difference between what the seller owes on the property and the selling price is the amount of equity in the property. Most times, the seller wants this equity in cash when he sells his property. This means that you, being the buyer, need to come up with the cash.
But, what if the seller agreed to take all or part of his equity in installments? You wouldn’t have to come up with the entire amount when you bought the property, but would make monthly payments to the seller for a time period, until the seller got all his equity paid. The most secure way for a seller to do this is to agree to an IOU, or a promissory note, and then secure it against the property. This is a mortgage that the seller will “carry” for you.

The main advantage for the buyer is that less (or no) cash is needed to pay-off the seller’s equity. Very simplistic, but I hope it helps.


amateur question. - Posted by Javier (Michigan)

Posted by Javier (Michigan) on October 09, 1998 at 15:58:35:

From Carleton Sheet’s course or in general:

What does it mean that a person takes back a mortgage?

What is the benefit for the buyer when a seller takes back a mortgage. I just want to hear it in different words, perhaps easier to understand.

Thank you much.


Re: amateur question. - Posted by Brad Crouch

Posted by Brad Crouch on October 10, 1998 at 03:12:15:


Maybe this will help clarify:

When you borrow money for real estate, you don’t “get” a mortgage. You “give” a mortgage. The mortgage is the pledging of the property, as security on the loan. Having the mortgage (that YOU gave) entitles the lender to take the property if you don’t make the payments you promised. Or do anything else that “violates” the rules set forth in the lender’s contract (that you signed).

If we are dilligent and lucky, we can find a seller who is willing to act like a bank, in that they provide the necessary financing (or part of it) to enable you to purchase the property without “traditional” financing (such as banks and other lending institutions).

The benefit for the buyer in having owner financing, is that it is usually cheaper (no loan fees, points, closing costs, “garbage” fees) and fewer “hoops” to jump through. Probably the best thing is the ability to get favorable terms. Everybody cannot qualify for traditional financing, even though it seems to be easier these days.

Hope this helps,