Also referred to as the seller financing or creative financing, Owner Will Carry Financing is an agreement where a buyer finances the acquisition of property through finance advanced by the seller.
The amount advanced to the purchaser is included in the purchase price.
Normally, this option is more suitable to a buyer who cannot get funding from conventional financial institutions.
Typically, it happens if the property in question is free of any mortgage or if the buyer’s down payment is enough to clear an outstanding mortgage.
However, if the seller has an existing mortgage, the seller’s current financier must be made aware of the transaction.
How does Owner Will Carry Financing Work?
Typically, the seller extends enough credit for the price of the home excluding any down payment.
The two parties then sign a promissory note that states the terms of credit.
They are then required to sign a mortgage or “deed trust” depending on which state the agreement is undertaken.
The buyer is expected to pay back the loan plus the interest within the stipulated period.
If a seller has a junior loan, the buyer may take title subject to obtain a first mortgage or the existing loan.
The buyer is given the deed; s/he then issues the seller with a second mortgage for the difference on the purchase price after deducting the down payment and the first mortgage amount.
However, it’s good to note that Owner Will Carry Financing loans are typically short term.
That’s because sellers, unlike financial institutions, may not be patient to wait for twenty years or more for the loan to be repaid in full.
However, they may be amortized for the 20 years if there is a balloon payment at the end.
This is especially possible if the property is projected to gain value over time or the buyer is in a position to get financing from traditional lenders to refinance the purchase.
Types of Owner Financing
Below are some of the various types of Owner Will Carry Financing:
Lease Purchase Agreements – Buying a house on lease purchase means that the buyer is given equitable title through the lease. Upon fulfillment of the agreement, the buyer is issued with a title and can source for a loan to pay off the seller.
Land contracts– The buyer is given an equitable title and is expected to make payments to the seller for a particular period. Once the final payment is made or the buyer gets a refinance, the seller is then required to transfer the deed.
Mortgages and promissory notes – A seller may decide to carry a mortgage for the balance of the purchase price. In some cases, this may include an underlying mortgage price that will be less than the down payment paid. Such financing is referred to as “all-inclusive mortgage” for which the seller is granted an override on the interest of the underlying loan.