The Disadvantages of Owner-Carried Mortgages

If you own your house free and clear you are eligible to sell it with an owner-carried mortgage.

If you own your house free and clear you are eligible to sell it with an owner-carried mortgage.

Selling your home can be a time-consuming process. Offering an owner-carried mortgage is one way you may be able to decrease the amount of time it takes to get your home off the market. In an owner-carried mortgage, you finance the sale of the property to the buyer on your own, without involving a financial institution. This can be an attractive option to buyers who have recently gone through bankruptcy or do not have good credit, which may keep them from being able to get a traditional mortgage.

Payment Time

If you choose to finance the sale of your home to the buyer, you won't receive the total amount of cash for the home at closing, as with bank-financed mortgages. Many sellers rely on cash from the sale of their home to use as a down payment to purchase a new one. In an owner-carried mortgage, you will receive the down payment from the buyer at closing and the remainder in monthly payments.


In an owner-carried mortgage, if the buyer defaults on his payments you are liable. You will be responsible for paying any necessary monthly expenses for the house, because you still own it. You will have to endure the hassle and expense associated with evicting the buyer and putting the home back on the market.


In an owner-carried mortgage, you will still have to deal with the hassle of owning the property. Although you will not be living in the home or paying any expenses associated with it, as the owner of the property you are still liable for it. You will be responsible for tasks such as collecting mortgage payments each month from the buyer, ensuring the property insurance on the house is up to date and checking to see that the buyer is keeping up with the property maintenance.


Since you are the lender in an owner-carried mortgage, you will be responsible for providing the buyer with monthly mortgage bills and statements. You will need to have both the time and the knowledge to correctly calculate the amount of the payment allocated to interest and principal each month and to present the buyer with the balance on the loan. You will also be required to complete a Form 1098 mortgage interest statement each year,


About the Author

Laura Jerpi has been working in marketing since 2007. She is an interactive copywriter who writes for Thought Leadership Publications, Ai InSite and South Source. Jerpi holds a Bachelor of Arts in communications from the University of Pittsburgh and a Master of Business Administration from Robert Morris University.

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