Seller financing is a real estate transaction where a property seller agrees to lend money to the buyer to purchase and close on the property.   The seller becomes the Mortgagee for the buyer; this process is also known as owner financing or seller carry back financing.  In essence, the seller assumes the role of the mortgagee, and carries back the loan. The buyer remits regular monthly payments to the seller.  The down payment, terms and conditions are negotiated between the seller and buyer as in any other real estate transaction.  This flexibility allows the seller and buyer to negotiate the interest rate, payment amount, late charge provisions, interest and payment adjustments, any call date, any acceleration clause, and other provisions of the payment schedule that a buyer would typically find it difficult to negotiate with a traditional lender. 

Some Seller advantages of seller financing are:

Larger Pool of Potential Buyers

Many buyers have difficulty getting conventional loans, due credit scores in the 500 to 600 range, limited funds for down payment, or being self employed.  Some buyers only look for properties that offer seller financing. They know that bank loans cost about four percent of the loan amount.

Shorter Sale and Close Times

Generally, seller financing transactions sell and close 70% faster than with conventional methods. 

Flexibility

Since the seller is the Mortgagee, the transaction can be tailor made to meet the needs of both parties.  The seller has the option to retain the primary note as an income stream, or sell it in the secondary market. 

Some Buyer advantages of seller financing are:

Easier Qualification

Many buyers don’t fit into the rigid requirements necessary to qualify for a conventional mortgage.  However, this does not mean they are bad credit risks. They may simply have not established credit, they may be divorced, or be new to the country.  Seller financing gives these buyers the chance to purchase the home of their dreams.

Flexibility

With seller financing, the terms of the contract are completely negotiable between the two parties.  The required down payment amount is up for discussion.  Alternatively, there may be low monthly payments initially, with a larger balloon payment down the road.

Cost Savings

Generally, traditional financing carry closing fees, and points ranging form 4% to 10%.  Seller financing eliminates nearly all of these fees.

Time Savings

Traditional financing for a real estate transaction normally takes about one month; the closing cannot be scheduled until the financing is available.   With seller financing the transaction can close when the parties agree on terms. This means the buyer gets into their new home sooner.