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TYPES OF OWNER FINANCING

On OwnerCarryIt.com, we have many different types of listings, so you should be able to find a scenario that fits your position. As with any type of loan, consult an attorney prior to signing any financial documents, to ensure you have protected yourself against any potential financial conflicts with a bank, seller or buyer.

Among the types of carryback financing available are:

Mortgage/deed of trust The seller holds or “carries” the mortgage charging interest, just like at a bank. Sometimes the buyer has a portion of the mortgage with a bank, while the seller holds a second mortgage for the difference. Ex. A buyer purchases a property for $100,000. However the bank will only give the seller a $75,000 mortgage. So the seller carries a second mortgage for $25,000 allowing the buyer to purchase the property.

Wrap-around mortgages A wrap-around mortgage actually has two different mortgages involved. The seller has a mortgage with their bank, and the buyer has a mortgage with the seller. The second mortgage, “wraps around” the existing mortgage and guarantees it. It can be structured two ways. The most common way has the buyer pay the seller the full second mortgage, and the seller pays the bank back on the first mortgage. It can also be negotiated that the buyer actually pays the first mortgage note to the bank, and also pays the seller the difference of the purchase price and interest.

Ex. A seller owes $75,000 on his home at 5%. For a fixed 30 year mortgage note, his payment is $402.62. He sells it to a buyer for $100,000 at 7%. The buyers mortgage is $498.98. Because the buyer is guaranteeing the mortgage, the seller makes his $25,000 profit, plus income on the interest rate difference that he is charging.

Contract for Deed/Land Contract. A land contract gives the buyer what is referred to as “equitable title”, which is not the same as a legal title. After the buyer pays the full purchase price, plus whatever interest has accumulated, she then receives the deed.

Lease Purchase Agreement. A seller leases the property to a buyer for a predetermined time period and with a specific price for purchase. After the end of that period, the buyer takes a conventional mortgage to pay the remainder of the balance, less whatever lease payments were paid out.