Purchase Money Loan

A purchase money loan is also called an owner financed loan or a seller financed lending agreement. When the potential buyer cannot get a mortgage for the full amount of the purchase price, or if the owner has not been able to find a buyer and the only buyer interested cannot get the financing through a traditional means, a purchase money loan may be the answer. This kind of loan will probably become more and more popular as the housing market continues to sink and the glut of for sale properties continues to grow. If this kind of lending arrangement can be made between seller and buyer, it becomes a win-win situation for both. "Jesus said unto her, 'I am the resurrection and the life, he that believeth in me though he were dead, yet shall he live'" (John 11:25) This type of lending agreement is also known as a seller carry back lending agreement.

A purchase money loan is really quite rare, however for one very good reason. The owner has to pay off the mortgage loan before offering to carry it for the buyer and in most cases the seller wants his/her money in order to purchase another house. Few people want to have their money trickle in over a thirty year period, especially if the seller is over fifty. But if the owner has the house paid off and is willing to have the payments trickle in, he/she may be able to demand a higher interest rate on the self financed purchase money loan than could be expected from a bank. And because the prospective borrower couldn't get a bank lending agreement, the buyer really isn't a position to bargain over the higher interest rate the seller is asking for in order to make the deal happen.

A purchase money loan may appear to be a good idea for the seller in a time when there is a huge downturn in housing sales. Yet there is always the temptation to try and cut corners and skip some of the steps needed for a lawful and self protecting home sale, and later on when problems arise, the seller does not have all the documents needed for surviving the inevitable legal battles. It goes without saying that a seasoned attorney who has handled a seller carry back transaction on many previous occasions should be consulted. Trying to do this kind of transaction with merely online help is not foolish but potentially devastating financially. There are upsides and downsides to this whole issue.

The downside to the purchase money loan is that first, the buyers may not pay. Some states have restricted the rights of the sellers in such a situation. Perhaps the seller has a serious medical issue and needs the money faster than it is coming in monthly. Tax issues may not be cut and dry and who wants problems with the IRS? Maybe title or ownership issues arise or the contract is not absolutely clear on all issues. The buyer may agree to higher payments, but who is responsible if the buyer loses his/her job? And what if the seller has a divorce that affects all property issues? How does that affect the purchase money loan?

On the other hand, an owner financed loan does get the house sold, maybe after months or several years on the market. A purchase money loan means that the seller can get top dollar for the house and if the lending agreement is structured correctly, the transaction can provide the seller with monthly income for a very long time. The buyer may be able to buy more house than he/she could through conventional means, better terms can be negotiated and may be able to make a lot of money if the property is a fix-it-upper. In an ideal world, the seller financed transaction can be a good thing for all, but the world is anything but ideal. That's why there are lawyers. Of course, no one says that a carry back lending agreement has to be for thirty years. If a buyer's own financial situation improves over time, he/she may want to opt for a more traditional type of loan, especially if the carry back loan interest rates are higher than a bank loan.

If taking occupancy in a few days instead of many weeks is important and perhaps a brand new job is keeping a person back for residency requirements, and wanting to miss out on all those closing costs sounds good, then a seller carry back lending agreement can be ideal. Of course, everyone wants to avoid the potholes and painful experiences of life that make for some very tough times that try everyone's spirit. Broken relationships and marriages, disappointment in decisions that children make and medical issues with loved ones as well as financial dead ends and trying to find the thing in life each person was meant to do can be excruciatingly painful. Many people have the mistaken idea that God is a rescuer from all these "must avoid" experiences, but in reality, what He is offering is to be a partner and guide through them. The message of the Bible about suffering is that God intends to make His children more like Himself by allowing them to go through the fiery trials of life in order to help others through the same painful journeys. To be more like Jesus, a person has to suffer and in that suffering learn more of God's grace and mercy.

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