In Amy Hoak’s Wall Street Journal article, “Mortgage Lending for Sellers“, she points out the advantages to both buyers and sellers when a private mortgage is used to purchase a home.
With a private mortgage, the seller or some other interested individual holds the mortgage on the property. There are no bank or mortgage company requirements for the buyer to meet such as a steady income history for the past two years or a particular credit report score. Instead, the buyer and the seller reach their own agreement with their own terms.
Private mortgage income is attractive to sellers who are looking for a steady stream of income and are looking to defer capital gains.
Ms. Hoak points out that sellers should protect themselves by requiring a sizable down payment of at least 10%. That way, if the seller needs to reclaim the property through foreclosure, there is a cushion between what the seller is owed and what needs to be recovered at the foreclosure sale.
Ms. Hoak also notes that sellers should consult an attorney to draft the necessary language for the loan documents including provisions regarding late payment, default and inadequate insurance of the property. In addition, sellers might want to consider hiring a loan servicer to collect payments and keep records.
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