What is an Owner-Carry Mortgage?

Do you need a stellar credit score and 20% down to purchase a home? Not necessarily. Home-finance options aren’t one-size-fits-all. There is a multitude of financing options geared toward meeting the needs of potential homebuyers, regardless of their credit situation and individual circumstances. One such option is the owner-carry mortgage.

What Is an Owner-Carry Mortgage?

An owner-carry mortgage, also called seller carryback financing, is nothing like a traditional mortgage. Rather than borrow money from a third party to purchase a home, a buyer who enters an owner-carry mortgage agrees to make mortgage payments to the seller. In essence, the seller finances the mortgage, but at the outset, little or no money may change hands.

Owner-carry mortgages are customized legal contracts that vary greatly from agreement to agreement, depending on the terms negotiated and agreed to by the parties involved.

What Are the Pros and Cons of Seller Financing?

As with all mortgage options, seller-financed mortgages have certain advantages and disadvantages. Both buyers and sellers have a lot to gain (and potentially lose) by entering a mortgage agreement together.

Advantages associated with seller-financed mortgages:

Help for under-qualified buyers to purchase a home.
Less expensive — may have no closing fees.
Sellers earn interest.
Flexible down payment terms.
Sellers keep all money earned in instances of default.
Owner-financed homes may sell faster.

Disadvantages associated with owner-carry mortgages:

Buyers may pay higher interest rates.
Buyers may have to pay a large balloon payment.
Sellers may have to foreclose if the loan goes into default.
Sellers may get stuck with taxes and repairs in cases of default.
Sellers who still owe on their mortgage may be subject to a “due on sale” clause, requiring them to pay the full mortgage balance if they sell.

Seller-financed mortgages are complicated financial and legal contracts that present pros and cons for everyone involved. For this reason, it’s vital for all parties to have legal representation.

How Do You Find Owner-Financed Properties?

Since owner-financing is unconventional, it takes a bit more detective work than usual to find properties attached to sellers who will finance. But you can find them. Look on realtor sites using search phrases such as “owner carried,” “seller financed” and “land contract.”

Also, check out the listings in local classified ads, community discussion boards and databases specifically for owner-financed mortgages. If all else fails, contact your local real-estate office. They may have the inside scoop on listed properties.

If you can’t secure a conventional mortgage, seller financing may be just the thing you need to get into your very own home. As with any other type of mortgage, there are pros and cons associated with owner financing, so be sure to research all your options before making a decision. After all, purchasing a home may be the biggest financial decision you’ll make.