Seller carry back benefits and drawbacks

Mortgage Lending Guide: Seller Carry Back Benefits & Drawbacks

Seller Carry Back Benefits and Drawbacks

Seller carry back can be advantageous to you if you have little cash on hand for a down payment and your credit score won't quite allow you to qualify for a 95% or 100% mortgage loan.

It can also free you from paying for Private Mortgage Insurance if the seller carries 20% or more. But it does have disadvantages, such as the obligation to make two house payments rather than one.

In most cases, the seller will take "interest only" payments in order to keep your debt to income ratios low enough to allow you to buy the house. The downside is the large balloon payment due in 5 or 10 years.

Unless you have a large settlement, inheritance, or other windfall on its way to you, you'll need to plan on a refinance before the balloon payment is due.

If your credit is improving and your income is rising yearly, the only risk is the possibility that interest rates in general will rise before that time period is up and you need to refinance.

If, on the other hand, things aren't going so well, you could be put in the position of taking a high interest mortgage to pay off that second. The good news is that your equity should have grown due to appreciation in the marketplace, so you won't need such a high loan to value ratio.

Seller carry back is one of the many tools that your Mouse House Mortgage loan advisor can use to help you become a homeowner. This tool, however, needs the approval of the sellers.

It won't work unless the sellers have a sizeable equity in the house. If there's an underlying loan for most of the value, then they'll have to have their money at closing. It also depends on what the sellers have planned to do after they sell. They may need all of their equity to purchase a new home in a new community.

For these reasons, seller carry back isn't used as often as some of the other tools your Mouse House Mortgage loan advisor can offer you.