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In the US experience, I've often heard or read of people "writing their own mortgage", I mean to say when selling a house.

You'll hear of a "doctor or attorney" writing their own mortgage on a sale, or, you'll read in one of those be-crafty-with-real-estate books about how you can convince a sellor to write the mortgage themselves. (Assuming I have this generally correct.)

So, say party A is a friend or perhaps tenant of party B, party outright owns house H which would sell for $200,000 say.

In general how can party B write the mortgage and thus sell the house to party A?

Is it basically a matter of party A getting an ordinary mortgage (from ordinary megabank M), but A guarantees the mortgage to M?

Or does A literally create a legal mortgage agreement (perhaps using some ready-to-go system or consultants available for this purpose?)

Is this sometimes done so that A does not have to have a deposit, or, if A has plenty of income (as known personally to B) but has no deposit, is a Drummer, no credit or whatever?

What about critical issues like PMI?

Has anyone here ever done anything like this on either end?

Indeed (surprisingly) I couldn't immediately google any info or QA here on the topic: perhaps because of my lack of terminology.

(I just naturally assumed there'd be web sites ("write your own mortgage.com"), self-help books ("Mortgage America! The write-your-own-mortgage revolution and what it means to your family's future."), and consultants that do it for $49.99 on an 800 number - you know, hey this is America!)

In short to make my question more specific, (1) where the heck do I gain information on this idea of party B "writing a mortgage", (2) has anyone done this sort of thing and/or could the steps be outlined in a few words?

5

It sounds like you are describing "seller-financed" mortgages (also sometimes called "self-financed", where "self" is the seller). In essence the buyer and seller enter into a legal contract (a promissory note) that specifies the payment schedule, interest rate, etc. The nature of the agreement is similar to the kind of mortgage agreement you'd get from the bank, but no bank is involved; it's just an agreeement directly between the buyer and seller.

If you search for "seller-financed mortgage" or "self-financed mortgage" you can find a good deal more info about this kind of arrangement. Here is a useful article from Investopedia, here is one from Forbes, and here is one from Nolo.

Broadly speaking, the advantages and disadvantages of seller financing are two sides of the same coin: by doing the agreement yourself without bank involvement, you can cut out procedural red tape, delays, and requirements that a bank might insist on --- but in so doing you may expose yourself to risks that those procedures are designed to shield you from. Most obviously, as the seller, you receive only the down payment up front (not the entire purchase price, as you would if the buyer got a bank loan), and if the buyer doesn't follow through on the agreement, you're on your own as far as starting foreclosure, etc.

You can read up on some of the linked pages for more details about the pros and cons. In general, as those pages note, seller-financed mortgages are relatively rare. A home is a big purchase, and if you don't know what you're doing it's easy to screw up in a way that could cost you a large amount of money if things go wrong.

  • Thanks for this and all the great answers, I am studying them... – Fattie Jun 12 '16 at 4:02
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    Because of the risk, a seller might want to consider a "rent to own" lease. This way the title stays until the mortgage is paid off. – user662852 Jun 12 '16 at 13:25
  • perhaps a "rent to own" situation was more like I was thinking of; I'll google it up. – Fattie Jun 13 '16 at 13:14
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The other answers are talking about seller financing. There is another type of arrangement that might be described as "writing your own mortgage," where the buyer arranges his (or her) own financing. Instead of using a bank, a buyer might find his own investor to hold the mortgage for him.

An example would be if I were to buy a house that needs fixing up. I might be able to buy a house for $40,000, but after I fix it up, I believe it will sell for $100,000. Instead of going through a traditional mortgage bank, I find an investor with cash that agrees the house is a good deal, and we arrange for the investor to provide funds for the purchase of the house on a short-term basis (perhaps interest-only), during which I fix up the house and sell it. Just like a regular mortgage, the loan is backed by the house itself.

I am not recommending this type of arrangement by any means, but this article does a good job of describing how this would work. It is written by a real-estate guru with lots of training courses and coaching materials that she would like to sell you. :)

1

If an entity or individual has full rights to the land and land improvements, they can hold, transfer, delegate, or dispose of them on their terms. The only exception may be eminent domain. If the sovereignty meets the public necessity or public purpose tests they can assume or change the rights to your property in exchange for compensation.

As others have said writing your own mortgage falls under the category of seller financing. A seller can write a mortgage with the help of a loan servicing company. Some loan service companies report to credit agencies, to help with buyer refinancing at a later point.

Other forms of seller financing: Leasing Land contracts mineral contracts and more...

Additionally, the seller can finance the minority of the property, called a junior mortgage. For example, the Bank finances 79% of the value, the seller finances 11%, and the buyer's 10% down payment covers the rest. If the buyer defaults, the superior mortgage (bank's) has collection priority.

More commonly, the seller can option for a wrap-around mortgage or an 'all-inclusive mortgage'. The seller holds or refinances the existing mortgage and provides a junior mortgage in exchange for a secured promissory note and an all-inclusive trust deed. If the buyer defaults, the seller has foreclosure rights.

It is not uncommon for entities or people to use financing strategies other than the traditional mortgage if they are unable to exclude the gain on sale. Check out section 1031 exchanges. In almost all cases I would tell people not to make decisions based on tax consequences alone, if your financial objective/goal for seller financing sounds like a 1031 exchange, take exception and carefully consider the tax consequences.

1

You are asking about a common, simple practice of holding the mortgage when selling a house you own outright. Typically called seller financing.

Say I am 70 and wish to downsize. The money I sell my house for will likely be in the bank at today's awful rates. Now, a buyer likes my house, and has 20% down, but due to some medical bills for his deceased wife, he and his new wife are struggling to get financing. I offer to let them pay me as if I were the bank. We agree on the rate, I have a lien on the house just as a bank would, and my mortgage with them requires the usual fire, theft, vandalism insurance. When I die, my heirs will get the income, or the buyer can pay in full after I'm gone.

In response to comment "how do you do that? What's the paperwork?"

Fellow member @littleadv has often posted "You need to hire a professional." Not because the top members here can't offer great, accurate advice. But because a small mistake on the part of the DIY attempt can be far more costly than the relative cost of a pro. In real estate (where I am an agent) you can skip the agent to hook up buyer/seller, but always use the pro for legal work, in this case a real estate attorney. I'd personally avoid the general family lawyer, going with the specialist here.

  • Hi Joe - that makes sense and is as I thought, but how do you do that? What's the paperwork? – Fattie Jun 12 '16 at 4:05
  • Edited into my answer. – JTP - Apologise to Monica Jun 12 '16 at 10:52

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