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Buyer from the U.S. has asked about doing a owner contract or a vendor take back purchase on a cottage property. Can anyone explain this, advantages / disadvantages?

Category: Realtor

1 Comment → “Buyer from the U.S. has asked about doing a owner contract or a vendor take”


  1. Ara Mamourian

    Realtor

    Feb 28, 2012

    A Vendor Take back is when the Seller (vendor) acts as the bank essentially. It’s best when the Seller doesn’t need to cash out of the property right away and is happy with the income that can be generated by holding a mortgage.

    Example: Buyer cannot get traditional financing from the bank for some reason (being from out of town is an example) and needs to finance the property. Buyer and Seller agree on some sort of down payment (the higher the better) and arrange a mortgage take back for the rest. Another situation is when the bank wont lend enough and the Seller may take back a 2nd mortgage (this is riskier because your 2nd in line for payback in case of default).

    The benefit to the Seller would be a great return (usually higher than your standard bank rate) that is consistent over a period of 5-10yrs. This can be a good solution if the Seller can determine to the best of his/her ability of the creditworthiness of the Buyer. This leads me to the risk, there is a chance the Buyer will default on payments and the “chase” can get expensive. At the end of the day your average person has no business taking back a mortgage unless they have a strong group of advisers helping them though the entire process. A Real Estate Lawyer is key here.

    There are other advantages and disadvantages but this can be quite profitable for the Seller if done right.

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