Second Mortgage

1 Reply

Hi,

Can someone explain to me (For Dummies) how a seller carrying a second mortgage works?

How is it being calculated.

What's the benefit.

Why would a seller do/not do it.

And how  to persuade a seller To provide it

Thanks all

You buy a place for, say, $100K.  You put in a $10K down payment.  Seller carries a second for $20K and you get a first mortgage for $70K.  Note, I'm not saying you can find a lender to do this, but rather just using this as an example to answer your questions.

At closing, the first lender sends $70K to the title company along with all their paperwork.  The seller would submit the paperwork they wanted filled out, but doesn't actually have to hand over any cash.   You bring your $10K.

On the HUD, the $70K first, the $20K second and your $10K down payment all show up as credits on your side of the HUD. The $20K second will show up as a debit on the seller's side. That's the debut for the $20K they would have sent in if they were an ordinary lender. On the seller's side, they will get the price you're paying, less all their deductions. Ignoring the various closing costs, their side would show the $100K you're paying, less the $20K debit for the second, so they would get a check for $80K. Less in reality, due to the closing costs.

On your side it will show that you get the property, along with two loans.

Benefit for the seller is the income is increased and spread out.  Increased because they're charging you interest on the loan.  Spread out because it comes in payments.  But the seller is taking a risk making the loan.  If you default, they, like any second, can get hurt badly.

Terms are whatever you negotiate.

Note that many lenders will not allow seller carried seconds. You won't do that with a conventional loan on a SFR. It may be possible on larger commercial deals. Even then, the first lender is going to charge you a higher rate to cover the additional risk because of the lower amount you're putting into the deal.