Definition
A seller carryback is the seller financing part or all of the purchase through a promissory note. The buyer obtains a first mortgage from a lender and the seller provides a second mortgage, or the seller finances the entire purchase.
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Seller carrybacks are forms of owner financing where the seller agrees to finance part or all of the sale. Carrybacks supplement buyer financing (buyer obtains a first mortgage from a lender and the seller provides a second mortgage) or are standalone financing. Carrybacks benefit sellers by enabling property sales to buyers who can't qualify for full institutional financing, and provide sellers with ongoing income. Buyers benefit from flexible terms and avoidance of institution lending requirements. Carryback terms are negotiated and can vary significantly.
Pro Tip
Seller carrybacks are negotiable; if you're the buyer, negotiate favorable terms; if you're the seller, ensure the buyer's financial capability to make payments.
Example
A buyer obtains a $300,000 first mortgage on a $400,000 property and the seller carries back a $100,000 second mortgage at 4% over 10 years.