Exploring Vendor Take Back (VTB) Mortgages: A Win-Win Real Estate Option for Buyers and Sellers

In the business of real estate, there are a number of mortgage options.  One of those is the Vendor Take Back (VTB).  This is where the seller takes on a dual role as lender.  The way this generally works, the buyer secures a traditional mortgage and adds the down payment.  The balance of the property is financed by the seller. 

Just like with any contract, the terms are negotiated between the parties.  A VTB will probably have a higher interest rate than the first mortgage.  The VTB can cover the entire purchase or only a portion.

Understanding the Legal and Financial Aspects of Vendor Take Back (VTB) Mortgages

When the transaction is recorded, the seller’s mortgage is recorded just like a conventional deal, and if payments are defaulted, the seller/lender has the same rights to legal recourse as would a bank or other lending institution.  The seller retains equity in the property proportionate to the amount of the loan outstanding, so it is often thought of as a lien.  The home itself is the collateral for this mortgage.

For many, this is a good deal.  The seller has the property off the market and will be repaid, including interest, so they will make a little extra in the deal.  The buyer is usually getting a piece of real estate that they could not afford through conventional measures.

For the buyer, it is beneficial if they have poor credit.  If you have been declined by standard sources but find a seller who is willing to take a risk, especially if you are a likeable soul, you can get your starter home after all.  Or if you are considering buying property to flip, especially if you have little experience with the enterprise, the seller may be motivated to take the risk.  If the flip is quick and successful, the seller gets their full price. 

For commercial or investment real estate, the capital gains tax can be deferred over a five-year period.

For the seller/lender, you will have relieved yourself of the onus of maintaining a property, and you will have incremental income, including the interest payments.  You will be able to regain the property for resale if the buyer is unable to comply.  If the contract terms include a penalty for repayment prior to the term of the mortgage, you will make even a bit more.

Much of all of this will depend on the motivation of the seller, the structure of the financial arrangements, the contract, a willingness to take a risk (on the part of both the seller and buyer), and the reliability of the buyer.

Seek Expert Advice  for Informed Real Estate Decisions

If you are a buyer with a piece of property in mind, a good place to talk this over is easyhouseloan.ca.  There you can find professionals who have dealt with your situation in the past and will be able to provide sound and realistic advice on your ability to secure a first mortgage and the advantages or disadvantages of working through a VTB.  Armed with the best research you could hope for, you will be able to make a favorable decision under your specific circumstances.