Additional Principal Payments

When you purchase on a Real Estate Contract, it is important to understand that the Contract that the seller is holding is an entirely free standing note with its own terms and conditions. When you make a payment on this note a portion of your payment goes to principal and to interest based on an amortization schedule agreed upon by you and the seller. The underlying obligation that the Seller has to maintain (paid through escrow) is amortized based on the terms and conditions that the Seller has agreed upon with the bank. When you purchase with Owner Financing and make additional payments to the principal on your obligation, you must be sure that the Sellers underlying principal balance is also being reduced by the amount of your additional payment if the Underlying obligation is equal to, or if your payment is going to make the Sellers balance to the bank exceed the balance on your Contract. This is to avoid the sellers payoff at the time of close exceeding your payoff on the Real Estate Contract, and the seller having to come to the table with money to complete the call.