When you were sitting in the pre-licensing class, you likely thought, “I’m never going use this stuff after I pass the state exam.” For the most part, you won’t use it. But here is one thing that, if you remember it from pre-licensing, could save the sale.
Do you remember what a purchase money mortgage is? It’s when the seller holds the mortgage, or when the vendor is the lender. Usually when I teach this in class, people think this is crazy. Why would the seller want to hold the mortgage? For the same reason the bank wants to hold the mortgage – they make money from the interest.
Back in the good old days, this is happened every day. It’s not as common today, but it still happens. In fact, I have a purchase money mortgage on the house I live in.
If the buyer didn’t need any cash, the seller could finance the entire $200,000 purchase. Then, every month the buyer would send a check to the seller. The seller is acting as the bank.
The buyer gets the deed – this is not rent-to-own. The seller is lending money that is secured by the house. He puts a lien on the house just like the bank does. He can foreclose on the house, the same way the bank would. Every month, the seller will get a check in the mail. The real estate agent gets a commission. Win-win-win.
A more common example would be were the seller lends a smaller amount of money. Let’s say the seller wants $200,000 for the house. The buyer has $50,000 to put down and is approved for a $125,000 loan. In other words, the buyer is $25,000 short. You could ask the seller to hold a $25,000 mortgage. Every month, the buyer would send one mortgage payment to the bank and a different smaller payment to the seller.
If the seller doesn’t need the cash from the house, ask her if she would be willing to hold a mortgage. If you represent the buyer, and the negotiations are a small amount apart, ask the buyer to hold a purchase money mortgage. This might be the thing that saves the sale.
Good luck out there.