Owner Financing
A transaction where the seller acts as the lender — providing financing directly to the buyer.
Definition
Owner financing (also called seller financing) is a real estate transaction in which the seller provides the loan to the buyer instead of a traditional bank. The buyer makes regular payments to the seller, who holds a mortgage or deed of trust against the property until the loan is paid off.
Owner financing benefits: buyers can purchase without bank qualification; sellers can move property faster, defer capital gains taxes using the installment sale method, and earn ongoing interest income. Sellers receive a monthly payment stream — often at above-market interest rates.
Key terms to negotiate: interest rate, amortization period (how long), balloon payment date (when full balance is due), down payment, pre-payment penalties, and what happens in default. These are negotiable unlike conventional loan terms.
Related Terms
Seller Financing
A transaction where the seller extends credit to the buyer, eliminating the need for a traditional bank loan.
Note (Promissory Note)
A written promise to repay a loan — the legal document that evidences the debt in real estate financing.
Subject-To
Buying a property 'subject to' the existing mortgage — the deed transfers but the loan stays in the seller's name.
Assumable Mortgage
A home loan that can be transferred from the seller to the buyer, keeping the original terms.
Balloon Payment
A large lump-sum payment due at the end of a loan term that pays off the remaining balance.