Seller holding mortgage: Weigh the pros and cons


November 07, 1993

QUESTION: We own our home free and clear. We are planning to sell it and have another one built. What would be the advantage to us and to the buyer of our home if we held the mortgage?

ANSWER: Generally speaking, if a seller takes back the mortgage or financing, it makes the sale of the home easier and more attractive to a buyer since the buyer will not have to go to a bank or mortgage broker for a mortgage.

It also would be less expensive for the buyer since the buyer will not pay appraisal, application, points and other bank charges.

The major advantage to the seller would, of course, be that the house would be easier to sell -- important especially in a buyer's market, like the one we have experienced recently.

The other advantage to the seller could be the income, since the yield on a seller take-back mortgage would be higher than on a certificate of deposit (perhaps 7 percent vs. 3.5 percent).

The major drawbacks to the seller are that there may not be enough cash from the sale of the house to pay off the existing mortgage.

Also, a seller take-back mortgage may be illiquid -- that is, it may be hard to turn into cash in case of an emergency before the due date on the mortgage. Seller take-back mortgages can be a useful tool in the right situation, but the pros and cons need to be weighed carefully.

Q: Which home improvements will add the most value to my home?

A: At the top of the list are improvements to the kitchen or bathroom -- "hot buttons" in today's homes.

Remember, the look and the ambience is the key, so a total renovation of the kitchen or bathroom is generally not needed.

For example, instead of replacing all the cabinets in your kitchen, consider having the existing cabinets refinished and door handles replaced.

Likewise, new tile and carpeting and some colorful curtains or wallpaper can add new life to bathrooms.

Adding an extra bedroom or bathroom may be more expensive than creating a "finished" club room, but the bedroom or bathroom will probably add more value while making your home more livable.

You might want to consider converting an existing two-car garage to add more livable area.

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