A carryback loan, also known as seller financing or seller carryback financing, is a type of financing arrangement in which the seller of a property provides financing to the buyer to facilitate the sale. In a carryback loan arrangement, the seller essentially acts as the lender, allowing the buyer to make payments directly to the seller instead of obtaining financing from a traditional lender such as a bank or mortgage company.

Here's how a carryback loan typically works:

  1. Agreement: The buyer and seller agree to a purchase price for the property, and the terms of the carryback loan, including the interest rate, repayment schedule, and other loan terms, are negotiated as part of the sales agreement.

  2. Down Payment: The buyer may make a down payment on the property, which is typically a percentage of the purchase price. The down payment reduces the amount of financing needed from the seller.

  3. Seller Financing: Instead of obtaining a loan from a bank or mortgage lender, the buyer borrows a portion of the purchase price directly from the seller. The seller provides financing to the buyer by carrying back a promissory note secured by a mortgage or deed of trust on the property.

  4. Terms: The terms of the carryback loan, including the interest rate, repayment schedule, and other loan terms, are outlined in the promissory note and mortgage or deed of trust. These terms are negotiated between the buyer and seller and may vary depending on the parties' preferences and the specifics of the transaction.

  5. Repayment: The buyer makes regular payments to the seller according to the terms of the promissory note and mortgage or deed of trust. These payments typically include both principal and interest and continue until the loan is fully repaid.

  6. Ownership Transfer: Upon completion of the sale, the buyer takes ownership of the property, subject to the seller's mortgage or deed of trust. The seller retains a security interest in the property until the carryback loan is fully repaid.

Carryback loans can be beneficial for both buyers and sellers. For buyers, carryback financing may offer more flexible terms, lower closing costs, and the ability to purchase a property with less stringent credit requirements. For sellers, carryback financing may provide an additional source of income, faster sale of the property, and the ability to earn interest on the loan.

It's important for both buyers and sellers to carefully review and understand the terms of a carryback loan before entering into an agreement. Consulting with a real estate attorney or financial advisor can help ensure that the transaction is structured appropriately and that both parties' interests are protected