A Seller Mortgage May Be a Good Buy

From The Superpages.com

When buying a new home, negotiating a seller mortgage provides a great deal of flexibility and may overcome obstacles that prevent obtaining a mortgage from a traditional lending institution.

What is it?

In this type of transaction, the borrower pays the seller directly, without using a mortgage company or broker. It may either be payment in full (a rare occurrence) or installments.

Advantages

For the seller, there are several advantages to this type of mortgage, including

1. Providing set payments over a designated period of time
2. Capital gains taxes do not have to be paid on the installments
3. Allowing a sale to take place when there has been difficulty selling the property
4. The property is collateral and can be reclaimed in the event the borrower defaults on the loan.

There are advantages for the buyer as well:

1. A more favorable interest rate can be negotiated than by using a traditional lender
2. Administration fees are avoided
3. Mortgage insurance is avoided
4. The seller can buy the property even though a traditional lender has denied a loan.

In addition to the above mentioned benefits, if the selling price of the property is above the limits for a conventional loan, a borrower may be able to combine a conventional loan with a seller loan in order to avoid the higher rates of a jumbo mortgage.

A seller should consider offering a seller mortgage if there has been difficulty in moving the property. Borrowers will find this type of transaction favorable because of the lower overall costs. Borrowers should seek one if they cannot obtain a conventional loan or find a favorable interest rate.

Nothing is ever cut and dried

The main drawback to this kind of loan is that most sellers want the monthly payments made over a shorter period of time, usually five years or less. The length can be discussed, but the buyer should not expect to get a thirty, or even a twenty-year loan. If a seller loan is the only avenue available because of the borrower’s poor credit, the period agreed upon can be used to build up the borrower’s credit rating and, at the end of the term, a new loan can then be sought from a traditional lender to pay off the seller’s note.

Calculating Costs

If you can remember your high school algebra, you were given the formula for determining compound interest. For the rest of us though, the formula can be found on any number of internet websites that focus on determining mortgage payments. By entering several different combinations of figures, you can find a monthly payment schedule for the seller mortgage that is satisfactory to both the buyer and the seller.