Banks and Carry-Back Loans

I wrote earlier about the risks of Seller carry back financing, and there was a little confusion. Someone asked if the bank will carry back part of the loan.

So let’s start here: a carry back IS a loan. It’s just a loan that the Seller makes, it’s a loan of their equity to a buyer, with stated terms of paying that back, just like any other bank loan. In plainer language, the Seller gives you the house and takes back a loan, a lien. Give and take.

Given that information, banks don’t do carry backs, because a carry back, by definition, is between the Seller and Buyer. Banks, most certainly, make loans. But banks don’t have equity in the house, they’re not giving away a house’s equity and taking back a lien. They’re giving money and taking a lien. They’re not called carry backs when banks make loans.

Bottom line is, if you don’t understand carry back financing, you probably shouldn’t be considering it. Or at least, you should be doing a lot of research and gathering every bit of information available, so that you understand the nuances of carry back financing before agreeing to it, or proposing it.