Purchasers may wish to seek means of financing a real estate purchase other than obtaining a mortgage loan form a bank, trust company or other financial institution.
VENDOR TAKE-BACK MORTGAGE
When a seller accepts an offer to purchase which contains a vendor-supplied mortgage, the borrower ( buyer) agrees to make a series of mortgage payments. The amount of these payments will be governed by the contract signed between the two parties and will be calculated at the rate of interest stated in the contract ( the contract date).
It is not uncommon for a buyer to provide part, or even all, of the purchase price by means of a trade of the buyer’s own property. Such a trade could involve real property ( the buyer’s own land ) or personal property ( for example, a car or a boat). In such a transaction, both parties act as both seller and buyer.
RENT TO OWN
A “rent-to-own” house purchase or “lease purchase” is a lease combined with an option to purchase the property within a specified period at an agreed upon price. The borrower pays an option fee, X % of the price, which is credited to the purchase price. The borrower ( buyer) pays rent, and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium. Rent to own purchase plans have a solid economic rationale, which means that they can be structured so that both parties benefit.
AGREEMENT FOR SALE
The buyer agrees to pay the purchase price, over a period of time and, on full payment, the seller is obliged to convey title to the buyer. This term is also referred to as a Right to Purchase and is registered on title.
A seller receives an offer to purchase which specifies that the buyer will take over the payment of monies owing under an existing mortgage loan. There are two main reasons for letting someone assume your mortgage:
1. If the real estate market is depressed in your area and you have a good interest rate on your mortgage, an assumable mortgage may help you to attract potential purchasers.
2. If someone assumes your mortgage (the whole amount) your lending institution should not charge you any penalty.
If you are selling your property and your lending institution does NOT insist on the buyer qualifying for your mortgage, the most important thing to check is whether you will be released from that mortgage! If not, you could still be liable for the debt even though you have sold the property !
In each scenario listed above, all parties will be adequately informed to seek independent legal advice prior to signing the contract – or to contain a clause allowing such.