What is Seller Financing?

When the seller allows the buyer to make payments from time to time to purchase property, it is known as owner financing or seller financing. This personal financing by the seller can replace a bank loan or become a conventional mortgage addition.

Amount of payment, interest rate, and other conditions agreed between buyer and seller. The amount financed by the seller will depend on the buyer’s down payment and whether there is a bank loan.

Here’s an example of how it works …

An owner advertises his house for sale, either alone or through a real estate agent. A buyer submits a bid, and they approve the selling price of $ 175,000 with a 10 percent down payment = $ 17,500.

Instead of requiring the buyer to get a bank loan, the seller brings back the balance of $ 157,500 in draft and mortgage. It could also be notes and trust deeds or real estate contracts, depending on customary documents for that state: a title company or real estate attorney often used for the closing.

The note spells out the terms of repayment. In this case, they agreed to an interest of 8.5 percent at $ 1,211.04 per month based on 360 months amortization. The seller does not want to wait for full payment for 30 years, so the paper money requires a full refund, known as a balloon payment, within seven years.

Because buyers make payments to sellers rather than institutional lenders, legal arrangements are called personal mortgages, sellers bring back, or installment sales. The seller has the same mortgage right as the bank, so if the buyer does not make a payment, the seller can confiscate and take back the property.

If the seller prefers cash rather than payment from time to time, future payment rights can be sold to investors on the secondary market.