Seller Carry-Back Financing: Pros and Cons

Seller Carry-Back Financing

Buying a house is only feasible for some. Many people don’t have the income to qualify for a mortgage, especially when they try to apply with only one income.

Now that housing prices are soaring, not only the buyers are encountering difficulties. For sellers, finding a potential buyer that can actually receive financing for acquiring a house in a market where housing prices are through the roof is almost impossible.

But there is another option that makes selling and buying a house much easier: seller carry-back financing.

This article discusses what seller carry-back financing is and the pros and cons that come with using this type of financing.

What is Seller Barry Back Financing?

Seller carry-back financing is also known under the terms owner financing or seller financing. This method of financing the purchase of a house can be very beneficial for both the owner and the buyer. In this financing method, the house owner provides the financing and acts like a bank or lender.

The buyer of the house provides the owner with a certain monthly payment, which has been determined and documented in a contract. The difference between paying rent to the landlord and paying a seller carry-back type of loan is that the seller owns the house at the end of the contract.

The Pros and Cons of Seller Carry-Back Financing

Seller carry-back financing has a lot of benefits for both the seller and the owner. For the owner, it is easier to find a buyer since a mortgage is not required to purchase the house. This highly increases the number of buyers–since buyers who do not meet the mortgage requirements are also able to acquire the house.

Save Time and Money

Since carry-back loans are usually short-term loans, it is easier for a buyer with a low credit score to obtain bank financing to repay the loan. In addition, costs such as valuation costs, closing costs, and other transaction costs can be saved.

Speed Up the Selling Process

The selling process is accelerated as the process of applying for and waiting for mortgage approval is no longer necessary. Besides, the sale price of the house will be boosted and the seller can collect interest on the monthly payment.

High-interest Rates

For buyers, the biggest downside of this kind of financing is the high-interest rate. Since there is more risk for the owner, interest on carry-back loans is usually higher than the interest on a traditional mortgage. The owner takes a big risk because the monthly payment might not be made by the buyer, forcing them to foreclose on the property.

Monthly Payments Versus a Lump Sum

Another thing to consider is that the seller will not receive a lump sum for the house, but it is rather spread out over a certain period of time. This can be seen as both an upside and a downside, as it does provide an income to the seller, but might make it more difficult for the seller to finance the purchase of a new property.


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