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Owner Will Carry

Owner will carry is a becoming a popular way to finance the purchase of real estate. With the current credit crunch, many sellers are now offering to finance all or a portion of the purchase price in order to attract buyers. Also referred to as seller carry back, this type of financing is beneficial to both buyers and sellers.

Sellers who offer owner will carry financing open the doors to more buyers. Since many people are unable to qualify for a traditional mortgage loan, seller carry back provides buyers with the opportunity to purchase property without obtaining funding through a bank.

Owner will carry financing can be structured to suit the needs of both parties. The most common technique is for the seller to carry back 10- to 20-percent of the purchase price. This allows the buyer to obtain a traditional mortgage note for the balance.

Most mortgage lenders no longer offer 100-percent financing and require borrowers to contribute a down payment. Using owner will carry eliminates the down payment requirement and aids the borrower in obtaining a mortgage loan.

When property owners carry 100-percent of the financing, the buyer is usually required to provide the seller with a down payment of 3- to 10-percent of the purchase price. The agreement can be arranged as lease-to-own or purchase agreement.

With lease-to-own, buyers pay monthly rent and a portion of the rent is attributed to the purchase. Lease-to-own agreements generally last between two and five years. At the end of the term, buyers obtain financing through a mortgage lender for the remaining balance.

Using seller carry back mortgages buyers provide a monthly payment to the seller which is deducted from the purchase price. The seller is allowed to charge interest on the loan. However, interest rates must be in compliance with usury laws and cannot be higher than interest rates charged by mortgage lenders.

Owner will carry financing gives buyers the opportunity to clean up their credit and establish a higher FICO score. It is imperative for buyers to make payments on time each month. Payments should be made via personal check as opposed to a money order or cash. Should discrepancies arise, cancelled checks can be used to verify payments were made.

Buyers with low credit scores can improve their chances of obtaining mortgage loan approval by developing a strong track record of paying owner will carry payments on time for a minimum of one year. When entering into owner will carry agreements, ask the seller if he will be reporting payment history to the three major credit agencies. Doing so goes a long way in improving the buyer's credit rating.

Owner will carry mortgages should be backed by a promissory note which documents the purchase price, interest rate, amount of down payment, monthly payments, and the date when financing expires.

As with all real estate transactions it is a good idea to have a real estate attorney review the contract prior to signing. Owner will carry can be a great opportunity for buyers with less-than-perfect credit. However, it is imperative to make certain you are working with a reputable seller and that all contracts are legally-binding and protect both parties in case of default.

Our mortgage and real estate library contains hundreds of articles regarding owner will carry, seller carry back trust deeds, and other forms of creative financing. Enter your email address in the article subscription box to be instantly notified when new articles are published.

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Published on July 10, 2009 at 03:42 AM | Comments: 12

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I am convinced that owner financing is essential in the current market and that sellers, buyers and agents should consider it as an option to sell property that is not moving currently. It's not for every situation but everyone should know their options.

Tom | August 24, 2009 11:13 PM


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I've seen your other blog topics too and I can say you've got great content. Keep it up|going!

How to Get Rid of Hemorrhoids | December 6, 2009 8:37 PM


Great post. I found fabulous knowledge over here. I like to read informative blog's and I found this one to be very insightful. Please keep on writing on your Blog everything that I have read has made me think twice about on what should I do. I appreciate all the information you provide at Simon Volkov articles.

credit card debt solutions | December 29, 2009 5:41 AM


Thank you for your kind words. We will try to inform the general public about credit and credit worthyness tips. We have thousands of articles available online for you t read feel free to educate your self at your leasure.

Simon Volkov | December 29, 2009 9:06 AM


I have a question...what does foreclosure do to your credit??? my loan is an owner carry loan??? What happens in the forclosure process with an owner carry situation?? Thanks

sharisse | May 6, 2010 3:17 PM


Yes, It does affect your credit just like a bank is foreclosing on you.

The Foreclosure Attorney for the owner who is carring back the paper will provide the proof of foreclosure to the top 3 major credit bureaus.

Simon Volkov | May 12, 2010 8:50 AM


Hi friends,
Your style of presentation is very impressive. The meaningful contribution of your mind reflects on those people who are looking for real estate note investor. I would like to tweet on it and keep spying at every moment you blogging.

Selling Mortgage Note | July 10, 2010 3:22 AM


This sounds great. Could someone tell me how to do this when the seller has a mortgage on the property to be sold under seller carry back provision?

Allison | September 11, 2010 12:27 PM


We are carrying the mortgage for a young man. He is now 2 months behind on his payments. The only payment he made on time was the first one. My husband and I have a difference of opinion on how "foreclosure" works. The contract states we give him a letter saying that if he doesn't pay us in 14 days, we will repossess the house. His balance will be more than $1200.00. I say if he doesn't pay us we get the house back, end of story. My husband says we get the house back then take him to court to get the $1200.00. If he pays that don't we have to give him back the house? I think it's either the money or the house, but my husband says both.

Sandy Willingham | July 30, 2011 8:26 PM


So if I formed an LLC for my husband and his partner and the LLC was given an owner will carry for property for 5 years. The 5 years is up and we are wondering how a foreclosure will work. The attorney of the owner (seller) will complete the foreclosure but how do they report this. Will this hurt my husbands credit personally or will the LLC be hurt? Or both??

Brandie | January 15, 2013 8:25 PM


I have a mortgage with an bank on my rental property, the renter would like to buy but do not have enough credit to purchase it. Can I seller carry back mortgage? How would that work with my current mortgage with the bank? Do they still pay me and I pay the mortgage. Do they carry insurance on the property or do I?

ShannonB | September 17, 2014 8:49 AM


First You Have to Own the Property Free and Clear from the Bank. Then you can carry back the mortgage for the renter who does not qualify for the loan at this time in there life.
They must carry insurance on the property and provide you proof at least 2 times a year and you must do your own due diligence to verify the insurance that is on the property.

Simon Volkov | September 19, 2014 3:50 PM


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