Selling a house in today's challenging market can be easier if you are willing to "hold paper" – meaning, hold a mortgage, but, of course, you need to know how to hold a mortgage. There are some inherent risks to holding a mortgage for the buyers of your last home but, with the proper information, you can lower some of your risk. Additionally, one of the benefits of holding a mortgage is that, if you have to foreclose, you get the house back to resell – not a good situation but better than nothing.
In order to hold a mortgage, you should:
- Identify qualified buyers. The best way to get qualified buyers for your home is to list with a Realtor. You can always try to save the commission and sell your house by yourself but, if you're not a trained realtor, you've really increased your risk of finding the right buyers, especially if you are going to hold a mortgage.
- Pay special attention to the buyer's financial paperwork. Make sure you understand the risk you're assuming by holding the mortgage. Ask questions such as "Why are the buyers asking me to hold the mortgage?" If it's due to bad credit, the call is yours but beware–bad credit is, well, bad. Sometimes a buyer might ask that you hold a small second mortgage as they're cash poor. Your chances of recouping your money on holding a small second mortgage is better than holding the full mortgage.
- Talk to a mortgage lender about the buyer qualifications. Even though the buyer probably will not use their services, a friendly mortgage broker will foster a relationship with you in the hopes of gaining future business. Use their qualified eye and thoughts to shore up your chances of recouping your money from holding the mortgage.
- Decide on the interest you agree to hold on the mortgage. Check with the mortgage lender to find out what the going rate for a mortgage is. You'll probably find that it's way over what you'd get, interest while, on money stored in the bank so you might be able to afford to offer the buyer a slightly decreased rate while still making more money than you'd normally get.
- Make it legal. See a lawyer to draw up the final mortgage papers so that, if a problem arises, you'll be covered.
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