With a seller-held second mortgage, the buyer will obtain a first mortgage loan from a regular bank or financial institution. Part or all of the difference that the first mortgage does not cover will be in the form of a second mortgage held by the seller.
The first mortgage is normally a conventional mortgage loan from a standard lender. However, the first mortgage can also be an assumption loan that the buyer assumes from the seller.
Although the seller is technically the lender of the second mortgage, the seller does not have to provide any cash. Instead, the seller is lending from the property's equity, as elaborated in the example below. The seller-held second mortgage is therefore only a paper loan, rather than an actual transaction of cash.
To clarify the purpose and function of the seller-held second mortgage, the following examples are provided of a reduced down payment and a no down payment program.
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