What is a seller-carried second mortgage?
Last updated 2026-07-17
A seller-carried second is a note the seller holds for part of the purchase price, recorded in second lien position behind an institutional first mortgage such as a DSCR loan. The buyer stacks the first mortgage, the seller second, and a smaller down payment to close with less cash.
How the hybrid stacks
Example shape: a first mortgage covers 65 to 70 percent of the price, the seller carries 15 to 20 percent as a second, and the buyer brings the remaining 10 to 20 percent as the down payment. The seller converts most of their equity to cash at closing and still earns note income on the carried piece; the buyer controls the property with materially less cash in.
The catch is lender permission. First-lien programs differ on whether they allow secondary financing at all, and those that do cap the combined loan-to-value. Confirming which programs allow a seller second, and at what CLTV, is the make-or-break diligence step before writing this offer.
Why sellers say yes to seconds
A seller who wants mostly cash but likes the idea of some note income gets both: the bulk of the price wired at closing, plus monthly payments on the carried second. It is also a price lever; carrying a modest second frequently defends a full asking price. The second lien is riskier than a first, so sellers typically price it accordingly and keep the term short with a balloon.
Frequently asked questions
Do lenders allow seller-carried seconds?
Some business-purpose programs allow them subject to combined loan-to-value caps; others prohibit any secondary financing. It is program-specific, so verify with the lender or a licensed desk before contracting.
Is a seller second riskier than a seller first?
Yes. In a default, the first mortgage is paid before the second from foreclosure proceeds. Sellers price seconds with higher rates, shorter balloons, and conservative combined leverage for that reason.
Why use a hybrid instead of full seller financing?
Most sellers want the bulk of their money at closing. The hybrid gives the seller mostly cash plus some income, while the buyer still cuts their cash to close versus a standard down payment.
Educational content, not legal, tax, or investment advice, and not an offer to lend. Talk to a licensed professional about your situation; the Deal Desk is a good place to start.