To keep the mortgage or to pay it off??

[Alex Fanning]

Hey everyone, 

I’ve got a cash buyer to buy my home. I owe about 200k on it. I’ve agreed to 200k down and 200k financed over 5 months. The next question is should I pay off the mortgage company as soon as the down payment comes or would I be better off keeping it until the full payment has gone through? Would it be safer for insurance purposes if anything happens to the home to keep a mortgage on it? Any ideas or recommendations is greatly appreciated! Thanks :)

[Randall Alan]

Quote from @Alex Fanning:

Hey everyone, 

I’ve got a cash buyer to buy my home. I owe about 200k on it. I’ve agreed to 200k down and 200k financed over 5 months. The next question is should I pay off the mortgage company as soon as the down payment comes or would I be better off keeping it until the full payment has gone through? Would it be safer for insurance purposes if anything happens to the home to keep a mortgage on it? Any ideas or recommendations is greatly appreciated! Thanks :)

 So it sound like you are seller financing.  The buyer actually takes possession of the house with seller finance - the deed is transferred… you just become the bank, and hold a security interest.  With that said there is not an option for you to not pay off the existing mortgage in that scenario… you can’t do a normal transfer / sale with a lien on the property from your lender.

Other options would be a lease-purchase agreement where you retain the property during the lease.

One thing to consider is your liability and tax / insurance responsibilities for whichever way you proceed.  You sell it, the new buyer will insure it… you have to be listed as additional insured, just like the bank would demand.  

Lots can go wrong with your type of scenario… like what if the purchaser alters / destroys the property before you get all your cash and then defaults.   You can take back the property, but now it isn’t the way you need it.  

A straight sale would be a much better option.  Sell it and be done.   Your buyer could also be flipping the property while you hold his note.   He may do $25,000 in improvements and sell it for $500,000 - paying off your note and pocketing $75,000.  Be careful you aren’t leaving money like that on the table.    I would want to know the reason why the other money comes shortly after the sale, and would want a lot of  terms to protect myself if things go sideways 

Randy