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Vendor (Seller) Take-Back Mortgage

Buy a home by borrowing money from the seller.

This type of mortgage loan may come in handy if you don't have enough down payment or face other challenges in applying for a traditional mortgage — and the seller wants to sell to you.

Around it goes to buy a home.

Ever thought of asking the seller to loan you the cash from the home to buy the home?

It's called a vendor take-back mortgage (VTB). The seller lends the home buyer a portion (or in rare cases, all) of the sale funds through a privately structured loan.

Though it may not sound like the ideal home-buying or selling scenario, it can benefit both parties in achieving the desirable outcome — a home sold and a house bought.

A VTB usually occurs directly between the seller and buyer. However, we may be able to provide a short-term 'helper' loan to complete the sale if the seller doesn't want to loan for the full purchase price, and the buyer needs more funds.

Here's how a VTB works and what you need to consider.

Mortgages can get complicated. At True North Mortgage, we have more flexibility than a big bank to help tailor a mortgage solution quickly and simply.

To learn more, click here.

When might a vendor take-back mortgage come in handy?

For the buyer:

  • When it's harder to qualify for a traditional mortgage due to higher home prices or mortgage rates
  • For first-timers who don't have enough down payment saved but someone wants to sell you their home
  • When you need a customized mortgage solution, for example, if you have less-than-perfect credit or non-traditional income sources

For the seller:

  • You need a quick sale, and the market isn't moving (aka 'regular' buyers are nowhere in sight)
  • You'd rather make the sale work with an 'almost there' family member, friend, or stranger-at-hand than take a chance with the home languishing on the market and perhaps needing a price reduction
  • The possibility of deferring capital gains from the purchase price for tax benefits (please consult a tax professional regarding your details)

What are the benefits of a VTB mortgage?

  • The buyer can realize their dream of homeownership
  • The seller (as lender) earns extra money from the interest charged on the payments
  • Possible tax benefits for the seller if the home isn't their primary property (please consult a tax professional regarding your details)
  • With the sale of the home complete, the seller can move on to other goals

What are the drawbacks of a VTB?

For the buyer:

  • Depending on the VTB setup, you may need to handle two mortgage payments, which may impact affordability
  • The seller will remain as a registered charge on the home's title until the loan is paid out
  • If you can't make your payments and the seller is unwilling to negotiate a resolution, you could lose the home through foreclosure

For the seller

  • With your sale cash tied up in the VTB, it won't be immediately available for other investments, such as buying another home
  • You take on the risk that the buyer may default
  • You'll need to manage payments and any issues that arise (setting payment amount, schedule, and payment process)
  • If you need to foreclose to recoup your money, default costs will eat into your recovered funds
  • If your loan is second or third mortgage position on the home's title (the order of repayment in the event of foreclosure), the risk of not receiving your entire loaned amount increases

What are the VTB hoops to jump through?

For the buyer:

  • It is highly recommended to use a separate real estate lawyer to review your private loan contract
  • Asking for access to the property for an appraisal to ensure fair market value
  • You may be able to negotiate the interest rate and mortgage payment frequency, among other details
  • Need more funds to complete the purchase? We can quickly work with you for a short-term solution that fits (depending on your details)
  • Have an 'exit plan' — an idea of when you'll have enough equity or credit improvement to allow you to refinance with a traditional bank (for a better rate) and pay out the VTB

For the seller:

  • Complete due diligence to help ensure the buyer is able to pay back the amount you loan
  • Registering your VTB charge on the home's title (through a lawyer)
  • Ensuring your VTB contract is enforceable in the event of default (we highly recommend using an experienced real estate lawyer)

Is there a better option for the buyer than a VTB?

While a VTB mortgage may help you buy a home, it may come with higher risk and higher interest rates that can be harder to pay back.

At True North Mortgage, we have the flexibility to consider your details for a customized short-term mortgage solution to buy the home that may be at a lower rate than a private VTB — and come with less risk versus the potential unknowns of a private deal.

Come to us for less (mortgage) run-around.

At True North, we put you first. We have the experience to suggest your best strategy for closing the deal and can consider your details to work out a stress-free solution that saves you money and time. (Big banks work off of traditional, one-size-fits-all mortgages that don't flex when you need it.)

We seamlessly guide you through the process, answering all your questions. With us, you're not alone in buying your home.

Can we help? Apply using our form here