If a seller is going to carry financing on a property the sale
of the Real Estate still proceeds in the same manner, as an any other
real estate purchase. At closing a deed is
recorded and the new
property owner becomes the legal owner of the property. The seller
of the property will retain a deed of trust, the same way a bank would,
and the new owner makes payments with interest just the same as if they
had financed with a conventional lender.
Advantages of seller financing
The nice thing about a carry back is that the buyer and seller can
negotiate the terms of the loan, without any of the conditions that come
with conventional financing. Carry backs are generally simple to
execute, so a sale can be completed very quickly, much like a cash sale.
Sellers are often worried about the inconvenience of a carry back, but
the inconvenience is minimal thanks to the loan
servicing company. For a minimal fee the servicing company
will handle all aspects of the carry back, they collect the payments and
send them to the seller. A buyer can even login in to the web site
to check their account or make online payments.
The biggest incentive to a seller in a carry back is that they
collect the interest over the course of the loan. Another
advantage to a carry back is from a tax point of view. A
carry back splits up the lump sum of money that comes with the sale of a
property, allowing the tax burden to be split up over several years, or
maybe just postponed for a while.
A carry back can also be desirable to a buyer in a number of
ways. Credit rating becomes a lot less relevant in most carry
backs because as long as the down payment is substantial a seller has
little to lose if the buyer quits paying, because they can foreclose on
the property, and sell it again, keeping the down payment. An
appraisal is not required with a carry back either, so as long as the
buyer is content with the purchase price, then the sale can proceed.