What is a carry back loan?

A carry back loan refers to a financing arrangement where the seller of a property agrees to lend a portion of the purchase price to the buyer, effectively allowing the seller to "carry back" part of the loan. This type of loan enables buyers, who may have difficulty securing a full loan from a traditional lender, to finance their home purchase directly through the seller.

This arrangement can be beneficial for both parties; the seller can make a sale that might otherwise not happen due to the buyer's financing limitations, and the buyer can acquire the property without needing the full amount of financing from a bank up front. The terms of a carry back loan, including the interest rate and repayment schedule, are negotiated directly between the buyer and seller.

In contrast, a loan from a bank typically involves a standard mortgage where the financial institution provides the entire purchase price based on established lending criteria. Loans that cannot exceed a certain interest rate or temporary loans are not specifically related to seller financing and therefore do not define what a carry back loan is.