How does seller carry financing work to buy a home?

What is seller carry financing and how does it work to buy a primary home? As we enter the 2023 real estate market, creativity is the name of the game as long as interest rates remain above 6% for the average 30-year fixed-rate mortgage. Here are some things to be aware of if you’re looking to do creative financing by way of the seller carry…

Let’s say you’re looking to buy a primary home to live in and the price of the property is $500k. Let’s say the seller is willing to carry a $50k note. Let’s say as a result of this you’re excited about the notion of not having PMI (which is called private mortgage insurance which ensures the lender in the event you don’t make your house payment). Here’s how the math would work in such a scenario based on a $500k purchase price – 80% 1st mortgage in the amount of $400k, at 7% 2nd For $500k, and a 10% down payment from you, to buy the home thereby allowing you to avoid the unnecessary cost of PMI while at the same time having the seller carried the $50k note for you.

The mortgage company is going to need a copy of the note between you and the seller which has to be a market rate. It’s not a number etched in stone, but it has to be a market rate reasonable for the economic environment and in the time frame in which you’re desiring to purchase a home so for example a 2% 30-year fixed is not a market interest rate might be more something among the lines of 40-5%  or higher. In the above example, we used 7%.

Seller carry financing does a couple of things for you as a home buyer it could remove the PMI completely lowering your house payment potentially depending on how you and your mortgage company structure the deal, it can also give you the ability to negotiate on the purchase price perhaps a little bit more favorably since you’re going to be paying interest back to this seller, and also allows the seller to get a generated monthly income as a result of selling the property. Bear in mind they’re lending you $50k in our $500k example and they’re getting a return on their money they potentially otherwise couldn’t get in the bank hand. This is how it could be a win-win for you and the seller.

This is just an example of a conventional mortgage loan allowing you to have a bit more flexibility in terms of the purchase price and monthly payment for your home purchase. If you’re thinking about buying a home or want to learn more information about how sellers carry financing may help, start today by getting a complimentary mortgage rate quote.


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