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Vendor Finance Options


Vendor Finance comes in three forms: Terms Finance (also known as Instalment Finance); Second Mortgage Carry Back (also known as Mortgage Back); and Rent To Buy (also known as Rent To Own; Lease Option; Rent/Buy; Rent/Purchaser Scheme).

What is Terms Finance (also known as Instalment Finance)?

When an owner (called the vendor) sells a property, they have a couple of choices, either traditionally selling for cash where they’ll receive a lump-sum payout, or selling on terms where they will receive a deposit and the balance as agreed instalment payments.

Vendor finance is a form of private finance where the owner of the property sells it to the purchaser on the understanding that he/she will make agreed repayments to the vendor as specified in the terms finance contract.

If a person cannot access traditional finance then this method of vendor finance might be a viable option, but only if they can afford the required repayments.

 

 

What is a Second Mortgage Carry Back (also known as Mortgage Back)?

Briefly, a second mortgage carry back is when the vendor only finances part of the purchase, such as the deposit amount. The purchaser would seek funding from a financial institute for the majority of the loan (for example 80%) and this would become the first mortgage. The shortfall that the vendor finances (for example 20%) is called the second mortgage.

If a person cannot access traditional finance for the total property purchase, for example because they do not have the full deposit, then this method might be a viable option, but only if they can afford the required repayments.

 

 

What is a Rent To Buy (also known as Rent To Own; Lease Option; Rent/Buy; Rent/Purchaser Scheme)?

Rent to Buy is the situation where the purchaser rents the property, for a fixed term of 2 to 5 years, while paying extra money for the deposit and having an option to buy the property at a fixed price.

Unlike other vendor finance options, the purchaser is not committed to purchase unless they exercise the option to purchase. The paperwork for a Rent To Buy consists of two documents, a Residential Tenancy Agreement, with a separate document called an Option or Deed of Option.

If a person cannot access traditional finance or use other vendor finance methods, a Rent To Buy method might be a viable option, but only if they can afford the   required repayments.

 

 

Should a person seek legal advice if they are interested in using any of the vendor finance options available?

Yes. As with most things, there are advantages and disadvantages with each method. Before you sign any contract you should always pay for independent legal advice from a qualified and experienced lawyer in order to have your rights and obligations properly explained.

What do I/we do if I/we are interested in using a vendor finance method (Term Finance; Second Mortgage Carry Back or Lease Option) to purchase a property?

Should you be interested to purchasing using a vendor finance method in NSW, please call our agency on 8783 8755 to register your interest. From time to time we have third parties advertise through our agency who sell using vendor finance methods.

Additional link for further information:
http://www.vendorfinancelawyer.com.au/

 

* Note: Whilst care has been taken, the information provided on this page is only for introduction purposes to vendor finance options. Personal responsibility should be taken to seek further information, as well as to seek legal advice from a qualified and experienced lawyer before entering into any such agreements.