Owner Will Carry
Owner will carry is a becoming a popular way to finance the purchase of real estate. With the current credit crunch, many sellers are now offering to finance all or a portion of the purchase price in order to attract buyers. Also referred to as seller carry back, this type of financing is beneficial to both buyers and sellers.
Sellers who offer owner will carry financing open the doors to more buyers. Since many people are unable to qualify for a traditional mortgage loan, seller carry back provides buyers with the opportunity to purchase property without obtaining funding through a bank.
Owner will carry financing can be structured to suit the needs of both parties. The most common technique is for the seller to carry back 10- to 20-percent of the purchase price. This allows the buyer to obtain a traditional mortgage note for the balance.
Most mortgage lenders no longer offer 100-percent financing and require borrowers to contribute a down payment. Using owner will carry eliminates the down payment requirement and aids the borrower in obtaining a mortgage loan.
When property owners carry 100-percent of the financing, the buyer is usually required to provide the seller with a down payment of 3- to 10-percent of the purchase price. The agreement can be arranged as lease-to-own or purchase agreement.
With lease-to-own, buyers pay monthly rent and a portion of the rent is attributed to the purchase. Lease-to-own agreements generally last between two and five years. At the end of the term, buyers obtain financing through a mortgage lender for the remaining balance.
Using seller carry back mortgages buyers provide a monthly payment to the seller which is deducted from the purchase price. The seller is allowed to charge interest on the loan. However, interest rates must be in compliance with usury laws and cannot be higher than interest rates charged by mortgage lenders.
Owner will carry financing gives buyers the opportunity to clean up their credit and establish a higher FICO score. It is imperative for buyers to make payments on time each month. Payments should be made via personal check as opposed to a money order or cash. Should discrepancies arise, cancelled checks can be used to verify payments were made.
Buyers with low credit scores can improve their chances of obtaining mortgage loan approval by developing a strong track record of paying owner will carry payments on time for a minimum of one year. When entering into owner will carry agreements, ask the seller if he will be reporting payment history to the three major credit agencies. Doing so goes a long way in improving the buyer's credit rating.
Owner will carry mortgages should be backed by a promissory note which documents the purchase price, interest rate, amount of down payment, monthly payments, and the date when financing expires.
As with all real estate transactions it is a good idea to have a real estate attorney review the contract prior to signing. Owner will carry can be a great opportunity for buyers with less-than-perfect credit. However, it is imperative to make certain you are working with a reputable seller and that all contracts are legally-binding and protect both parties in case of default.
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Published on July 10, 2009 at 03:42 AM | Comments: 10