Second Mortgage

Should you go for seller’s second mortgage?

Let’s say that you are trying to sell your house. The sales price is $150,000; the buyer is able to get a loan for 96% of the sales price. However, they want you to do a Seller’s Second Mortgage for the remaining 4% ($6000). How exactly will that work? And should you go for it?

It’s basically a second mortgage in which you are the “bank” so to speak. It’s called a Seller Carry-back. You can charge interest and set specific payment terms and even foreclose if they don’t pay. A Deed of Trust is recorded on the property behind their first lender.

If you can afford to, and it may seem like a solid “investment” then by all means, but if you need the 6000 dollars to use for other purposes, or to pay off your existing lender, then don’t go for it. In the end, it has a lot to do with your comfort level. If they can’t afford to put down 6000 dollars, could they afford to pay for both loans?

Moreover, if the amount you receive from the buyers mortgage company is not enough to payoff your mortgage, you should stay away from a seller’s 2nd. This practice is used when a buyer has no money down and this is the banks way of getting their equity in the house first. If the buyer didn’t pay and the house was foreclosed on you would be paid after his bank. The terms on these loans can be decided by you, for instance, he can pay you monthly or it could be due in six months.

It would be better if he finds additional financing or help from family but if you don’t know the buyer personally it wouldn’t be wise to due a seller’s second. However, if using a closing attorney, they can legally prepare this seller second and explain to you the ramifications of it. So check with an attorney if you do not understand.