Understanding Carryback Financing

Understanding Carryback Financing

If you are new to the mortgage lending process, it can be an eye-opening experience to find out about all of the different ways to get approved for a loan. In the past, someone wanting to buy a home was expected to put 20% of the selling price down to get approved for a 30-year mortgage. Today, however, many borrowers want or need to finance their mortgage loans less traditionally.  By understanding carryback financing, you can decide if it’s the right lending solution for you.

What is Carryback Financing?

Simply put, carryback financing is when the seller is the mortgage lender. If the seller owns his or her property free and clear of any mortgages or liens, they can become the financing source for the buyer. The seller agrees to carry the mortgage note for a certain percentage of the purchase price that can range anywhere from 10% to 100%.

Why Use Carryback Financing?

Carryback financing can be a good option for borrowers who have less than perfect credit and need time to improve their scores.  By using this type of funding, the buyer can get into a home, and the seller can move their property with more flexibility than a traditional loan. The carryback loan agreement terms are usually shorter, giving the borrower time to make payments and improve their credit health. Ideally, when the carryback term ends, the borrower will be back on his or her feet and able to obtain financing from a mainstream lender.

Lending Risks

As with any mortgage financing, there is always a risk for the lender that the borrower will not make payments.  When the seller is lending to someone with credit issues, that risk may be higher.  Should the borrower default, the seller may have to foreclose, depending on the type of carryback it is.

Contact an Arizona Real Estate Attorney

This type of lending may be the right solution for your circumstances, but it’s vital that you consult with an Arizona real estate attorney before signing a carryback financing agreement. Your counsel can help you assess the situation, draft an agreement that adheres to Arizona law, and protects your interests.

Laura B. Bramnick is an Arizona real estate attorney who has experience assisting sellers and buyers with carryback financing.  She has the skills and expertise to advise you during all aspects of the mortgage lending process.  If you are seeking an exceptional, client-driven real estate lawyer in Scottsdale, Phoenix, Sedona, and throughout the State of Arizona, contact Laura B. Bramnick to schedule your consultation.

 

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