What does "owner will hold mortgage" mean?

Asked by Julia Rohl, 11238 Sat Feb 11, 2012

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Mitchell Fel…, Agent, Brooklyn, NY
Sat Feb 11, 2012
Dear Julia & Sabine:

When an owner "hold the mortgage" it means that they will give you the loan themselves and you would make your monthly payments to them instead of a bank. If you fail to make the payments on the mortgage, the seller can foreclose on you the same way a bank would if you did not pay your mortgage on time.

This can be beneficial to a buyer for several different reasons as follows:

1) If you cannot get a loan from a bank, often times a seller "holding the mortgage" is the only way you can buy the property. The property owner will have less strict criteria for giving the loan. Sometimes all they care about is the size of your down payment or the amount that you are willing to pay for the property.

2) You do not have to go through a lengthy underwriting process, hence the deal can close much more quickly.

3) Your closing costs should be less and you may even get a better rate than a bank would give you depending on the circumstances.

It also can benefit the seller because they will make money extra money in the form of interest attached to the loan. Usually it is a mutually beneficial situation to both the buyer and the seller. If I can be of further assistance please contact me. Good luck!

Mitchell S. Feldman
Associate Broker/ Director of Sales
Madison Estates & Properties, Inc.
Office: (718) 645-1665/ Cell: (917) 805-0783
Email: MitchellSFeldman@aol.com
3 votes
What are the risks? Can and what if the owner decides to sell the mortgage note to another company.? can that company then change the terms and dictate future dealings or does the original contract hold? Thanks
Flag Thu Feb 2, 2017
What are the risks? Can and what if the owner sells the mortgage note to another company? Does the current contract remain or the new company dictates new terms. Thanks
Flag Thu Feb 2, 2017
My NC Homes…, Agent, Chapel Hill, NC
Sun Feb 12, 2012
The owner is offering to be the bank and extend a mortgage to a buyer. There's typically only a couple of reasons an owner would consider this, either they simply have been unable to sell the property (typically this is a reflection on the price their asking or the condition of the property), or they prefer to have an income stream (your monthly payments) rather than a lump sum.

Buyers need to exercise some caution if considering a seller financed property as the Seller often structures the financing well above market rates. If you have good credit and could get a mortgage from a traditional lender you may not want to pay the interest rate a Seller may propose. On the other hand if you don't have great credit and your options are limited then this may be something to consider. Remember don't sign anything without careful review, you definitely should not sign a Sellers contract without having an attorney review it first.
2 votes
Great Answer!
Flag Fri May 3, 2013
First Last, , 90002
Sun Feb 12, 2012
Owner financing is often a fantastic deal---for the owner. For you, the buyer, not so much.

As your question suggests, it's relatively rare in New York City. It's more common in areas where there are properties that are difficult to sell.

If you can get a loan through a conventional lending source, you will almost certainly be better off. If the owner won't accept such a loan, find out why.

Here in Brooklyn NY it's entirely possible there is something about the property itself that makes it unbankable. You need to find that out, too, if you want to buy this place. The possibilities are too numerous to go into here.

You really need to hire an attorney who is an experienced real estate specialist to negotiate any owner financing agreement. This is not a job for your lawyer cousin who does estate planning all day.

Marcia in Florida is right, there are investors for whom owner financing is a major component of their business model. But we have a different business culture here in Brooklyn NY than in Florida, and a competent attorney really ought to flag the pitfalls for you.

Karla Harby
Licensed Real Estate Salesperson
Charles Rutenberg LLC
Manhattan NY
212-688-1000 x146
1 vote
Marcia VanBo…, Agent, Jacksonville, FL
Sat Feb 11, 2012
It means that the owner will hold the mortgage on the property for you and you will make your monthly payments to the seller. Be very careful however. You should still have an official closing with all the propert recorded documents to protect yourself. ou should also have the title company or closing attorney perform a title search and secure title insurance.
There are many real estate investors whose entire business model is based on selling homes 'subject to' an existing mortgage. This means that the owner does not pay of their existing mortgage before selling to you, assuming you will make payments to them, and they will in turn make payments to their lender. The problem is that if they fail to keep their mortgage current, the property could be foreclosed and taken from you, even if you have made all of your payments and upheld your end of the agreement.
1 vote
Terrymincey62, Home Buyer, New York, NY
Tue Jul 12, 2016
My landlord wants to sell me her house but she says she wants to hold the mortgage explain what that means
0 votes
Danny Soldano, Agent, Brooklyn, NY
Thu Mar 19, 2015
May be a good option for you to have the owner hold the note. Often it will be at a higher rate unless it is factored into your purchase price.
0 votes
Pugh.carmen, Both Buyer And Seller, 35215
Mon Jan 26, 2015
What happened to the money you paying the note with every month
0 votes
Pugh.carmen, Both Buyer And Seller, 35215
Mon Jan 26, 2015
I'm sorry all the money you put down the seller keep not none of it goes to buying of the house
0 votes
Pugh.carmen, Both Buyer And Seller, 35215
Mon Jan 26, 2015
Why isn't the house coming up I was waiting and they never came up
0 votes
Bruce Montgo…, Home Buyer, Allentown, PA
Fri Nov 14, 2014
it means the present owner is the bank. you make mortgage payments, with interest usually, to them.
0 votes
babygirl61108, Home Buyer, Brooklyn, NY
Tue May 7, 2013
are there special laws in the stae of P.A. on doing this we are trying to do this where the owner holds the mortgage on the house. We need to do alot of work on the house its a handy man special and alot of clean up is need on and around the property. and the bank will not give us a loan for this place but my husband being a carpenter can get the home done and we really want this place is there anyone on here who can help us get the details to buying this place?
0 votes
Peter Marren, Home Buyer, West Babylon, NY
Sun Feb 17, 2013
rent with option to buy with a considerable amount down
0 votes
Evelyn Kossi…, , Brooklyn, NY
Mon Jul 16, 2012
That means the owner will act as the banker; you will pay your "mortgage payment" to the owner. Usually the arrangement is identical to dealing with a bank in that a downpayment is made to the owner, an interest rate is agreed upon, and all the other details typical with a bank mortgage.
0 votes
Jay Mei, Agent, New York, NY
Sun Feb 12, 2012
It means the owner will act as the bank. It's usually for commercial buildings. If it's offered for residential properties; tt's a good sign that the owner is a motivated seller.
0 votes
Christopher…, Agent, Tarrytown, NY
Sun Feb 12, 2012
The owner will hold the note and you pay them. These are usually good for a few years until you can refinance into your own loan.

0 votes
Martina Ryan, Agent, Bayside, NY
Sun Feb 12, 2012
The owner will finance the deal & will hold a note for the mortgage.
0 votes
Alain Picard, Agent, Puyallup, WA
Sat Feb 11, 2012
Like everyone is saying here it just means that the current owner will basically be your bank and you will make payments to them. It seems like most of the time the interest rate that you pay will be higher than a bank and they will probably want a higher down payment than the bank as well.
0 votes
Lisa Young, Agent, Freehold Township, NJ
Sat Feb 11, 2012
Like the others have said, It means that instead of the bank holding the Mortgage, the home owner will. You should still have all of the protection of a regular purchase, make sure you have an attorney review any documents before sign anything. I would also have a title search done to make sure there are no liens, and it would be better if they owned the house outright. One option could be that you would make the payments to the bank for part of the payment and the other to the home owner.
0 votes
Anna M Brocco, Agent, Williston Park, NY
Sat Feb 11, 2012
It means the seller will hold the note on the mortgage, he/she will act as the lender and collect payments from you; keep in mind that the interest rate more than likely will be higher; before entering into such an agreement do consult with an attorney who specializes in real estate.
0 votes
Gail Gladsto…, Agent, 11743, NY
Sat Feb 11, 2012
It means you do not have to go to a bank for a mortgage, the seller will become your bank for the purchase of the house.
0 votes
I can't believe real estate agents. Somebody asks a question and the answer is parroted again and again, the last reply having less information than the first! Classic to the point that most readers basic knowledge extends past answers given here
Flag Fri May 20, 2016
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