How Does Owner Carry Contract Work

Owner carry contracts, also known as seller financing, is a type of real estate financing where the seller of a property acts as the lender and finances the purchase of the property for the buyer. In other words, the seller carries the note or mortgage on the property instead of a traditional lender such as a bank or credit union. In this article, we will discuss how owner carry contracts work and the benefits and drawbacks of this type of financing.

How Owner Carry Contracts Work

In an owner carry contract, the seller agrees to finance the purchase of the property for the buyer. The buyer pays a down payment and then makes monthly payments to the seller, just as they would with a traditional mortgage. The seller retains ownership of the property until the buyer pays off the loan in full. Once the loan is paid off, the seller transfers ownership of the property to the buyer.

Owner carry contracts can be structured in different ways depending on the agreement between the buyer and seller. The terms of the contract, including interest rate, repayment period, and balloon payments, are negotiated between the parties.

Benefits of Owner Carry Contracts

There are several benefits to using an owner carry contract to finance a real estate purchase:

1. Flexibility: Since the terms of the contract are negotiated between the buyer and seller, there is often more flexibility in the terms of the loan. This can be beneficial for buyers who may not qualify for traditional financing or who want to negotiate more favorable terms.

2. Quick closings: Since there is no need to involve a traditional lender, owner carry contracts can often close more quickly than traditional financing. This can be a benefit for buyers who need to close quickly to secure the property.

3. Lower closing costs: With an owner carry contract, there is no need for a title insurance policy or other fees associated with traditional financing, which can lead to lower closing costs.

4. Investment opportunity: For sellers, owner carry contracts can be a way to generate ongoing income and potentially earn a higher return on investment than other types of investments.

Drawbacks of Owner Carry Contracts

While there are benefits to using an owner carry contract, there are also some potential drawbacks to consider:

1. Risk: As the lender, the seller is taking on some risk in financing the purchase of the property. If the buyer defaults on the loan, the seller may have to foreclose on the property to recoup their investment.

2. Higher interest rates: Since owner carry contracts are often used when the buyer cannot qualify for traditional financing, the interest rates may be higher than what the buyer would pay with a traditional mortgage.

3. Balloon payments: Some owner carry contracts include balloon payments, which means the buyer must make a large payment at the end of the loan term. This can be a challenge for some buyers who may not have the funds to make such a payment.


Owner carry contracts can be an attractive option for both buyers and sellers, offering flexibility, quick closings, and potentially lower closing costs. However, it is important to weigh the potential risks and drawbacks before entering into an owner carry contract. As with any real estate transaction, it is always important to consult with a real estate attorney or trusted advisor before making a decision.