Vendor Take-Back Mortgage

Home Ownership by Country

Home Ownership by Country

Vendor Take-Back Mortgage

What is a ‘Vendor Take-Back Mortgage’

A vendor take-back mortgage is a type of mortgage in which the seller offers to lend funds to the buyer to help facilitate the purchase of the property. The take-back mortgage often represents a secondary lien on the property, as most buyers will have a primary source of funding other than the seller.

Explaining ‘Vendor Take-Back Mortgage’

In most cases, the take-back mortgage is offered at a rate below market value. This makes the option more attractive for the buyer, which can translate into a fast sale for the seller because another source of financing is being offered. Take-back mortgages often allow buyers to purchase property valued above their traditional financing limits.

Vendor Take Back Mortgage FAQ

What is vendor take back financing?

In vendor financing (also sometimes called “vendor take back,” or VTB), the owner agrees to be paid a percentage of the sale price over time with interest. It’s important to suggest vendor financing in your offer to purchase, along with proposed terms of the loan including the interest rate.

What is a buy back mortgage?

The vendor take back mortgage allows the home seller to lend money to the buyer for their property’s purchase. The seller has to own the property outrightly, meaning there can’t be a mortgage on the home at the selling time.

Is owner financing a bad idea?

Disadvantages of Owner Financing Higher interest: The interest you pay will likely be higher than a bank’s interest. Due-on-sale clause: If the seller has a mortgage on the property, his bank or lender can demand immediate payment of the debt in full if the house is sold (to you).

What is a vendor take back note?

A vendor take-back (VTB) (or “vendor financing”) is a potential supplementary method to finance an acquisition transaction. It is often documented by a vendor take back note or promissory note. In this arrangement, the vendor effectively loans a portion of the purchase price to the purchaser.

Why are seller carry back loans dangerous for sellers?

Like any sale and purchase of real property, there are inherent risks of potential litigation. If the seller forecloses on the security and ends up with legal title to the secured property, evicting the buyer post foreclosure can be both expensive and time consuming.

Further Reading

  • Residential mortgage lending in metropolitan Toronto: a case study of the resale market – [PDF]
  • Housing finance in early 20th century suburban Toronto – [PDF]
  • Local strategies in resale home financing in the Toronto housing market – [PDF]
  • The Contract for Deed as a Mortgage: The Case for the Restatement Approach – [PDF]
  • Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan – [PDF]
  • Vendors and Purchasers-Damages-Real Estate Purchaser Entitled to Increased Mortgage Interest Costs as Damages from Seller Who Breaches Sales Contract – [PDF]
  • A Financial Revolution in Agriculture – [PDF]