What is a carry back loan?

What is a "Carry Back Loan" in Real Estate?

A carry back loan, also known as seller financing or owner financing, is a type of loan where the seller of a property provides financing to the buyer. This arrangement can be beneficial in situations where the buyer may not qualify for a traditional mortgage from a bank or financial institution. In a carry back loan, the seller essentially acts as the lender, allowing the buyer to make payments directly to them over a specified period, under agreed-upon terms.

Here's how it typically works:

  • The buyer and seller agree on the purchase price of the property.
  • The buyer provides a down payment to the seller.
  • Instead of the buyer obtaining a mortgage from a bank, the seller finances the remaining purchase price.
  • The buyer and seller agree on the terms of the loan, including the interest rate, repayment schedule, and the duration of the loan.
  • A legal document, often a promissory note, is drawn up to record the terms of the loan.
  • The buyer makes regular payments to the seller according to the agreed-upon schedule until the loan is fully repaid.

Carry back loans can offer advantages to both buyers and sellers. Buyers might benefit from more flexible qualification criteria and potentially lower closing costs, while sellers can attract more potential buyers and possibly sell their property faster. However, there are also risks involved, especially for the seller, who might face challenges if the buyer defaults on the loan. Therefore, both parties should carefully consider the terms and consult with legal and financial professionals before entering into a carry back loan agreement.

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