Thinking of Carrying Back a Mortgage For Your Buyers?

Helping buyers buy and finance a home can be a way for you to earn some interest on the loan, much greater than what you can find at your local bank or credit union. Plus, the note you issue is secured by the real estate so if your buyers begin to default, you can begin the process of foreclosing and recovering your asset. For instance, buyers come to you and ask if you’d be willing to carry the mortgage for them. You agree and charge say 6.00 or 7.00 percent. You can make an interest only note or a fully amortized one. It’s your call.

Before we get too far into this discussion, depending upon the location of the property and local rules and regulations, you’ll want to work with a local real estate attorney to properly execute the note while retaining your interest. Further, should you decide you want to get into real estate investing full time and finance multiple notes, at some point you’ll be considered a lender and must follow additional guidelines. In other words, know before you go.

So why would someone ask you to finance all or part of the purchase? Typically because they’ve applied for a traditional mortgage and couldn’t qualify. That said, if a bank turned them down why would you approve the very same application?

If you are considering carrying back a…