Unlock Hidden Inventory: The Investor’s Guide to Seller Carry Mortgages
Brought to you by Brian Gibbons | www.REISkills.com
Training Module: Seller Financing Deep Dive
Introduction: Beyond the Bank
What if you could buy property without a bank’s approval, without perfect credit, and without massive down payments? Welcome to the world of Seller Carry Financing—a powerful tool where the seller becomes the bank. This training will show you how to find these deals, structure them correctly, and use them to build your portfolio.
Chapter 1: What is a Seller Carry Mortgage?
A Seller Carry Mortgage is a form of owner financing where the seller provides a loan to the buyer to cover part or all of the purchase price. Instead of getting a check from a bank, the seller gets a promissory note from you, secured by a mortgage or deed of trust on the property.
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It’s Not as Common as You Think: The biggest hurdle is finding sellers who own their property free-and-clear. Most sellers need their equity to buy their next home.
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But It’s Incredibly Powerful: When you find the right motivated seller, it opens doors that banks have closed.
Chapter 2: The Three Flavors of Seller Carry
| Type | How It Works | Best For… | Key Risk |
|---|---|---|---|
| 1. Straight Note | Seller owns free-and-clear. They carry the entire loan (a “first mortgage”). | The ideal scenario. Clean, simple, and straightforward. | Hard to find sellers who own outright. |
| 2. Second Mortgage | A bank provides a first mortgage for part of the price, and the seller carries a second mortgage for the rest. | Buyers who can qualify for a bank loan but don’t have a full down payment. | Seller’s loan is in second position; if you default, the bank gets paid first. |
| 3. Wrap-Around Mortgage | Seller has an existing mortgage. You make one payment to the seller at a higher rate; they pay their original lender and keep the difference. | Creative financing when the existing loan has a low, assumable rate. | Violates the due-on-sale clause in the seller’s original loan. Seller could default on their payment, causing foreclosure. |
Warning: Wrap-around mortgages are risky due to the due-on-sale clause. Use extreme caution and always have a backup plan.
Chapter 3: Why Would a Seller Do This? The Advantages
For You, The Buyer:
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Little to No Money Down: Truly motivated sellers care more about ditching their problem (the property) than a giant down payment.
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No Credit Check: The seller isn’t a bank. They may glance at your credit, but they won’t run it through a rigid algorithm. They’re judging you on your character and the deal’s merits.
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Invisible Debt: This loan typically does not report to credit agencies. This keeps your debt-to-income ratio low, allowing you to qualify for other traditional loans more easily.
For The Seller:
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Sell a Hard-to-Finance Property: They can sell a unique, distressed, or non-warrantable property that banks won’t touch.
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Generate Monthly Cash Flow: They turn a lump of equity into a steady stream of income, often at a higher interest rate than a CD or savings account.
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Potential Tax Benefits: They can spread out capital gains taxes over the life of the loan instead of paying a large tax bill in one year.
Chapter 4: The Pitfalls & How to Avoid Them
| Challenge | Solution |
|---|---|
| Finding Motivated, Free-and-Clear Sellers | Target inherited properties, older homeowners who’ve paid off their mortgage, or landlords with empty units. |
| Closing Costs | Negotiate to have the seller pay their share, or roll the costs into the loan amount. If the seller is getting a great price and steady payments, they may be flexible. |
| The Due-on-Sale Clause | Avoid wrap-arounds. For a second mortgage, use a traditional bank for the first loan, which satisfies the due-on-sale requirement upon payoff. |
| Foreclosure Process | This is a risk for the seller, not you (the buyer). If you stop paying, they must foreclose, which is costly and time-consuming for them. This is why your credibility is key. |
Chapter 5: Negotiating the Terms – The REISkills Method
Your goal is to structure a win-win deal. Here’s what to negotiate:
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Interest Rate: If the seller is overly focused on a high rate, they’re not truly motivated. Aim for a rate at or slightly above market. You’re solving their problem, not applying for a bank loan.
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Loan Term: Standard terms are 15, 20, or 30 years (amortized over 180, 240, or 360 months). This determines your monthly payment.
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The Balloon Payment: Most sellers don’t want payments for 30 years. A balloon clause is common. Example: “Payments based on a 30-year amortization, but the entire remaining balance is due in 5 years.”
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Your Exit Strategy: You MUST have a plan to refinance or sell the property before the balloon payment comes due.
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KILL the Due-on-Sale Clause: Standard mortgage documents (like the FNMA forms) include a clause that says the full loan is due if you sell the property. You must remove this clause. If the seller insists, negotiate for a “one-time transfer right” so you can sell to your end-buyer.
Chapter 6: How to Execute – Finding Deals & Qualifying Buyers
Finding Seller Carry Deals:
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Your Network: Tell everyone you know you’re looking for sellers who own their property free-and-clear and want monthly income.
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Direct Mail: Target absentee owners, inherited properties, and out-of-state landlords.
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Your Buyer’s List: When you wholesale a property, ask if the seller would consider carrying paper. You might just land a great deal.
Finding Buyers for Your Seller-Financed Properties:
When you’re ready to sell a property you own with seller financing, use a Lease Option, not a straight seller carry mortgage. This gives you more control and avoids the foreclosure process if your buyer defaults.
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Market to “Rent-to-Own” or “No Bank Qualifying” tenants. This attracts people who are credit-worthy but need time to repair their credit or save a down payment.
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Partner with Real Estate Agents: Offer them a referral fee ($500-$1,000) for sending you buyers they’ve pre-qualified but who can’t get traditional financing right now.
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Partner with Mortgage Brokers: They have clients who are almost qualified. They’ll send them to you, knowing they’ll get the commission when the buyer refinances in a year or two.
Pre-Qualifying Your Buyer:
Ask key questions:
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“How much do you have for a down payment?” (Let them name the number first.)
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“What can you afford per month?”
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“Have you had any late payments in the last year?”
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“What’s your plan to get mortgage-ready in the next 1-2 years?”
Avoid other investors. You want an owner-occupant who will care for the property and be highly motivated to eventually get a traditional mortgage.
Key Takeaways & Your Action Plan
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Seller Carry is a Niche Tool: It’s not for every deal, but it’s incredibly powerful for the right deal with the right motivated seller.
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Free-and-Clear is Key: Your best prospects are inherited properties and owners who have paid off their mortgage.
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Structure for Your Exit: Negotiate a long amortization for low payments but include a reasonable balloon term (5-7 years) to make the deal palatable for the seller.
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Protect Your Future Rights: Always remove the due-on-sale clause from the mortgage document.
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Use Lease Options to Sell: When you’re the one providing financing, use a lease option to maintain control and avoid the costly foreclosure process.
Ready to Implement Seller Carry? Get the Right Tools at REISkills.com
Using the wrong documents can turn a great deal into a legal nightmare. You need contracts that protect you and ensure enforceability.
Visit www.REISkills.com to access our library of state-specific resources, including:
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Attorney-Reviewed Promissory Note & Mortgage Templates
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Due Diligence Checklists for verifying clear title.
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Scripts & Negotiation Guides for convincing sellers to carry paper.
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Comprehensive Lease Option Kits for when you’re ready to sell.
Stop letting banks dictate your investment strategy. Start creating your own financing.
