The Basics of Seller Carrybacks: What You Need to Know

Selling real estate can be difficult, especially during a global pandemic when the future of the market is uncertain. Even for sellers who find willing buyers, there is no guarantee those buyers can obtain financing to complete the purchase. This is why property owners sometimes turn to seller carryback financing, which is a special concession that can entice buyers.

If you are considering entering into a seller carryback financing agreement, these are the things you need to know.

Seller Carryback Financing Defined

Simply put, seller carryback financing is owner-provided financing. The seller acts as the bank or lender and carries a mortgage on the property, collecting monthly payments from the buyer. When this type of agreement is made, sellers receive documents that describe the terms and conditions of the loan: a mortgage, trust deed, land contract or another similar document.

Seller carrybacks can also be referred to as owner financing or seller financing.

When to Explore Seller Carryback Financing

Seller carrybacks can greatly benefit borrowers whose credit scores are lower than recommended. With the help of the property owner, the borrowers can more flexibly take over use of the property than they could with a traditional loan. Carrybacks are also typically shorter term loans, so borrowers can ideally obtain financing from a bank at the end of the term.

For property owners who are struggling to sell real estate, it may be worth exploring seller financing to make the property more attractive to prospective buyers. This concession can also boost the sale price, and owners will collect interest on monthly payments.

Lending Risks

Just like banks and mortgage lenders are aware their borrowers may not make payments, sellers should understand the risk of lending. If sellers are financing because the borrowers have a less-than-ideal credit history, that risk may be greater.

Pros and Cons of Seller Carrybacks

Owner financing can facilitate a faster sales process from start to finish. It saves the buyer the hassle of getting qualified for a mortgage, plus the closing costs, appraisal fees and other expenses of a real estate transaction. It’s also a way for sellers to make more money long-term, once interest is factored into the equation.

However, seller carrybacks carry a higher interest rate than buyers would typically be given with conventional financing. For sellers, there is also the risk that the borrowers do not pay back the loan and leave the owner to foreclose on the property. Carryback financing also means the sellers do not get all of the money at once, but rather spaced out over the term of the loan.

Find An Experienced Arizona Real Estate Attorney

Seller carryback financing can be beneficial for both parties in a real estate transaction, but there are risks involved on each side. Our attorneys can help you navigate your prospective seller financing agreement and protect your best interests in any resulting legal predicament. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.