Owner financing: Who receives credit for principal/interest?

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I am trying to purchase a property with owner financing. Hypothetically the seller owes $85,000 to the bank and the property is worth $110,000. He has agreed to seller finance the property for 3 years. I am trying to wrap my head around who the principal/interest credit goes to, the seller or to me as the buyer. Within 3 years he will need to be cashed out so if the credit goes to the buyer (me) then would he receive less than what was agreed upon at closing? If the buyer is paying for the property for the duration, shouldnt they receive the credit? Help!

Originally posted by @Greg Mihaylov:

I am trying to purchase a property with owner financing. Hypothetically the seller owes $85,000 to the bank and the property is worth $110,000. He has agreed to seller finance the property for 3 years. I am trying to wrap my head around who the principal/interest credit goes to, the seller or to me as the buyer. Within 3 years he will need to be cashed out so if the credit goes to the buyer (me) then would he receive less than what was agreed upon at closing? If the buyer is paying for the property for the duration, shouldnt they receive the credit? Help!

When using owner financing a new and additional mortgage is created. There are now two mortgages. The seller still has his mortgage and his payments go to paying down his mortgage. The buyer, you, have a mortgage with the seller. Your payments pay down the mortgage with the seller. You have no control or benefit from his payments paying down the original loan in his name. You do however have benefit from paying down your mortgage with the seller. Within the 3 years you mention, you have to come up with a way to pay off the rest of your mortgage.

You may be confusing it with "Subject To" which is very different. In Subject To you are simply taking over payments of his mortgage and the mortgage stays in his name. This doesn't seem to be what you are talking about, but some people confuse the two types of financing. You can take over a loan using Subject To and do a carry back for the the equity with a payout of 3 years depending on what the seller needs and is willing to do.