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What is vendor take back mortgage?
Take Back Mortgage Definition:A vendor take back mortgage which is also know as a seller take back mortgage is another way for a buyer to find a source of funding to purchase a home. In this case, the seller offers to lend some of the funds to the buyer to facilitate the transaction. Most buyers already have a primary source of funding lined up, and so this take back mortgage is usually a secondary lien against the property. (Vendor Take Back Mortgage)
- What is Vendor Take Back financing?
- What interest rate should borrowers expect to pay?
- What fees should borrowers expect up front?
- How can a borrower tell if a seller can provide a VTB mortgage in second position?
- How can an investor find property that comes with a possible VTB mortgage?
- What down payment would a VTB mortgage require?
- Why would a seller consider issuing a VTB mortgage?
What is Vendor Take Back financing?
Anytime a seller provides a portion or all the mortgage financing needed for a property sale, that’s called vendor (seller) take back financing, also known as a VTB mortgage.
What interest rate should borrowers expect to pay?
There are several factors that contribute to this answer. How much of the mortgage would you need the seller to carry? Is this a second-position mortgage designed to supplement a bank mortgage? The vendor will ultimately set the rate, but expect to pay more for a second-position mortgage, and if it’s a first-position mortgage, expect the rate to go up with the percentage of financing that you need.
What fees should borrowers expect up front?
There are no upfront brokerage fees on residential private mortgages. Depending on the seller and the nature of the vendor take back mortgage, brokerage a/o lenders fees may apply which would be deducted from the gross mortgage. Standard applicable Legal Fees and Closing costs will apply.
How can a borrower tell if a seller can provide a VTB mortgage in second position?
Can you provide enough of a down payment to give the seller a clear title on the property? Then you have a lot better chance of the seller extending VTB financing. With a clear title, that means the seller no longer has to pay his or her own note on the property, providing a great deal more flexibility from a financial perspective.
How can an investor find property that comes with a possible VTB mortgage?
These properties can be hard to find. However, there can be some clues in the MLS listing that a VTB mortgage is a possibility:
- A mention of a clear title, or a lack of other liens
- A seller willing to carry the financing for the sale
- A private sale that appears to allow creativity in the financing
- A rental property that the existing owner has held for a minimum of a decade
- A retiree looking to downsize with clear title to the property for sale
- A recent price drop, which should show a strong desire to sell the property
What down payment would a VTB mortgage require?
Do you want 100% VTB financing? Or are you blending this with a bank loan, and using the VTB note as a second-position loan?
If the VTB mortgage will be the only note on the property, this will depend on what the seller needs. There may be a small mortgage balance left due on the property. Was a realtor involved? Your down payment would need to include the balance due. If there is already a mortgage due on the property, and you need to get a first-position mortgage with a bank or private lender, plan to put down at least 10% plus closing costs and other fees. If the property is in a rural market, that will go up to 15 or 20%. The down payment has to come from your own assets or a gift, although private lenders will often let you take out other loans for the difference, as long as they don’t come from the seller as well.
Why would a seller consider issuing a VTB mortgage?
A VTB mortgage can help a property sell faster, even when the market is down. It can bring in a better sale price because the buyer likes the benefit of avoiding the bank. Finally, the interest rate on the money over time means a higher return for the seller.
In the majority of cases, a vender take back mortgage has a rate of interest that is below what the market dictates. The seller is often willing to provide this interest discount because it makes the sale more attractive to the buyer, and the seller can get out of the house more quickly. A seller take back mortgage is also attractive to the buyer in many cases, because it allows him to buy property that has a higher value than his lending limits from a traditional financing source.
There are a number of factors that keep people from being able to qualify for the property they want to buy. Their debt to income ratio may not be at the right level to permit purchase of a particular home, but if the house is the home of their dreams, a mortgage take back can combine nicely with a traditional loan or funding from a private lender to give them the total funding they need to buy the house.
If you are the buyer in the situation, you get the benefit of the house you want, even though you cannot qualify for it through traditional channels. You don’t run the risk of borrowing additional funds from a traditional lender and hitting problems in the days leading up to closing.
If you’re the seller, this can be of significant benefit when the market is down or you really need to get out of the house. There are few situations as unsettling as having to pay two mortgages at once, but often relocation means having to take advantage of a residential opportunity across the country, even when you still have not managed to sell the house you lived in before moving. Throwing in the “sweetener” of some additional funding makes your own property more attractive to potential purchasers. You do end up leaving some of your money in the house, in the form of the loan, but you also have the opportunity to make more interest than you would on that money through passbook savings, certificates of deposit or even government debt.
Vendor Take Back Agreement
Usually, vendor take back mortgages come with a 10 percent down payment requirement, but there is considerable flexibility with this sort of vendor take back loan, because it is simply an agreement between the buyer and the seller, who now becomes a lender. Whatever arrangements that the buyer and seller come up with are legal, as long as they both agree to them. If the buyer has a little more cash on hand, increasing the down payment can increase equity.
As with any multiple-loan process, getting a seller take back mortgage does involve some risk. In situations where you take out more financing than you qualify for, you have to make sure that you have it in your budget to make the payments each month. There is nothing like a foreclosure when it comes to blowing a hole in your credit profile, and you do not want to have the fact that you took out multiple liens be the reason why you lose your home. Go through your monthly budget and make sure that you have the resources you need to satisfy all of the liens you plan to take out when purchasing your new home.
If you are looking at a particular home but lack some of the funding you need to make the deal happen, Amansad Financial has a number of resources to place at your disposal. If you are having a difficult time finding traditional funding, we have relationships with individuals and companies looking to invest in private mortgages, and we can match you with the one that makes the most sense with your own situation. We also can talk you through the vendor take back process, whether you are a purchaser or seller. If you still have questions about vender take back financing, our professionals can take you through every step so that you feel confident going into closing.
Contact Amansad Financial today for your traditional, semi-traditional, private and alternative finance options and possibilities.