Are you considering selling your home? If you’re thinking about seller financing, but already have a mortgage, you may be asking, “Is it possible to do owner financing in FL with an existing mortgage?” We get this question frequently, so we’ve put together this post to shed some light on the answer and offer strategies to help you navigate this option.
Understanding Your Options
Homeowners who are thinking about selling have several options. They can list their home through an agent, or they can list it themselves, or they can sell directly to a buyer. And, many homeowners are discovering a simple strategy called “owner financing” or “seller financing” that allows them to sell their home to a buyer and collect regular payments that pay off the house:
- The buyer pays a down payment
- The buyer pays regular monthly payments
- When the agreed-upon price is paid, the title reverts to the buyer
This method not only provides sellers with flexibility in finding a buyer but can also offer tax advantages, as payments are spread out over time rather than being taxed as a single lump sum. Additionally, owner financing may help sellers earn a higher return due to the interest included in the buyer’s payments.
Sellers often find this approach appealing because it can open up their buyer pool, including those who may not qualify for conventional loans. Buyers appreciate the option too, as it can allow them to secure a property without directly impacting their credit.
If you own your house outright, you can do a seller financing agreement. But what happens if you have a mortgage? Maybe you’re wondering, “Can I do owner financing in [market_ state] if I have a mortgage on the property?”
The short answer is: it’s complicated.
Seller financing with a mortgage
In certain states, homeowners with an existing mortgage may consider a “wraparound mortgage” to facilitate seller financing. This arrangement allows you to extend financing to a buyer, often at a higher interest rate, while you continue making payments on your original mortgage. Essentially, the buyer’s payments “wrap around” the existing mortgage, providing you with a spread between what you owe on your loan and what the buyer pays in interest. This can be beneficial if your current mortgage has a lower interest rate, allowing you to earn additional income from the difference.
However, wraparound mortgages come with notable restrictions and risks. For one, they’re not legally allowed in every state, so it’s crucial to verify if this option is available in your area. Additionally, many mortgages have a “due-on-sale” clause, which gives the lender the right to demand immediate repayment of the remaining loan balance if the property changes ownership. This can pose a significant risk if the lender enforces it, as you’d be required to pay off the mortgage in full.
In addition to wraparound mortgages, another seller financing option with an existing mortgage is “subject-to” financing. In this arrangement, the buyer takes ownership of the property and agrees to make payments on your existing mortgage, but the loan itself remains in your name. Essentially, the buyer is purchasing the property “subject to” the existing financing, with the understanding that they’ll make the mortgage payments directly to the lender, even though the original loan remains your legal responsibility. This setup can be attractive to buyers who may not qualify for a traditional mortgage, and for sellers who want to expedite the sale without paying off their current loan.
If owner financing sounds ideal, reach out to us. As real estate experts, we can walk you through various options—some of which you might not be aware of. We’re here to help directly or connect you with someone who can assist.