Posted by Stacy (AZ) on January 11, 1999 at 11:58:02:
Ed-
Yes, you are correct. The seller agrees to “loan” you part of the equity in the property you are purchasing from him. Say you’ve negotiated the price of a house to $100K. You can get a new first mortgage for 70% ($70K) easily. However you don’t have the extra $30K for the seller. But, the seller only really needs $6K cash. He is willing to loan you the remaining $24K over a period of time. This loan will be secured by the property you are buying, so it’s a mortgage.
So, you have to pay the monthly payment on your new $70K first mortgage, plus your $24K second mortgage. The terms of the second mortgage can be anything you agree on…10 years 6% interest only payments with a balloon due in 2 years, for example. That way, you can refinance the entire amount after you have owned it for a while, improved it, whatever.
Would someone be so kind to share some more details on offering a seller a 2nd mortgage. I’m just starting my real estate adventure and I see a lot of text on asking a seller to “take back a 2nd mortgage” or “assist in the financing”. These may be two separate things, but I’m confused on the details. Does a 2nd Mortgage mean the seller obtains a 2nd himself and you pay him directly for whatever the length of time is set? Or, do I get a 2nd on the property somehow and that’s how the seller get’s his cash needed(wanted)? Or, am I totally way off base and not understanding this concept? By the way, I’ve owned CS’s program 3 months, and he uses this 2nd mortgage advice in creating some of his offers. So any help would be much appreciated.