A Vendor Take-Back Mortgage (VTB) is a type of seller financing where the property seller or developer acts as the lender for part (or all) of the purchase price. Instead of the buyer borrowing the full amount from a traditional bank, the seller "takes back" a mortgage—meaning the buyer makes mortgage payments directly to the seller under agreed-upon terms.

Let’s say an investor wants to buy a $700,000 multiplex but can only secure $500,000 from a bank. The seller might agree to hold a VTB for the remaining $200,000, usually secured by a second mortgage on the property. This makes it easier for the investor to close the deal with less capital upfront, while giving the seller passive income from interest payments.

Why Sellers Offer VTBs:

Faster Sale – Helps sell properties in slow markets or where buyer financing is limited.
Higher Selling Price – Sellers may negotiate a better price by offering flexible financing.
Ongoing Income – The seller earns interest on the VTB, which can offer strong returns.
Tax Planning – Capital gains can be spread out over years instead of all in one tax year.

Why Investors Use VTBs:

Less Capital Required Upfront – VTBs reduce the size of bank financing needed, sometimes avoiding stricter lender requirements.
Creative Financing – Allows investors to structure deals with less money down or in cases where banks won’t finance.
Flexible Terms – Interest rates, amortization periods, and payment schedules are negotiable.
Stacking Capital – Investors can combine a VTB with traditional lending, private money, or joint ventures to scale faster.

Typical Terms of a VTB:

Terms are always negotatied based on the situation:

Interest rates: Often slightly higher than bank rates, but negotiable.
Term: 1–5 years is common.
Security: Usually secured by a second-position mortgage.
Repayment: Interest-only or blended payments.

Example in Pre-Construction:

Some pre-construction developers offer VTBs on completed units that didn’t sell, for buyers of commercial projects, or for buyers having issues closing. This makes it easier for investors to secure units with lower upfront costs and better leverage, especially if they’re looking to hold, rent, or flip the asset.

VTBs are incredibly rare in pre-construction through and I have only seen one developer offering it to buyers who were facing issues closing and the VTB was only for down-payment assistance, not for the entire mortgage amount, so don’t depend on this as a financing strategy for your closing. VTBs are much more common in commercial financing when seller’s own a property outright with no mortgage.

Risks to Consider:

Very rare since most developers don’t offer VTBs
Higher interest than institutional loans.
Shorter terms may require balloon payments.
Second-position mortgages have higher risk if the property is foreclosed.

Bottom Line:

A VTB mortgage is a powerful creative financing tool in a real estate investor’s toolkit—especially in markets where lending is tight or equity is limited. Used strategically, it can unlock deals, improve returns, and accelerate portfolio growth without overextending capital but won’t work in most pre-construction situations.