Seller Financing
A transaction where the seller extends credit to the buyer, eliminating the need for a traditional bank loan.
Definition
Seller financing (also called owner financing) is a creative financing strategy where the property seller acts as the lender — providing the buyer a loan to purchase the property. The buyer makes monthly payments directly to the seller at an agreed interest rate, without needing a traditional bank mortgage.
Seller financing is attractive when: the property doesn't qualify for conventional financing (condition, unique type), the buyer doesn't qualify for a bank loan, or both parties want to structure a deal quickly without the bank's requirements. Sellers benefit from installment sale tax advantages, ongoing interest income, and faster closing.
Negotiating seller financing requires motivated sellers who own the property free and clear (or nearly so). Key terms to negotiate: purchase price, down payment, interest rate, amortization, balloon payment date, and default provisions. A real estate attorney should draft the note and mortgage to protect both parties.
Related Terms
Owner Financing
A transaction where the seller acts as the lender — providing financing directly to the buyer.
Note (Promissory Note)
A written promise to repay a loan — the legal document that evidences the debt in real estate financing.
Assumable Mortgage
A home loan that can be transferred from the seller to the buyer, keeping the original terms.
Subject-To
Buying a property 'subject to' the existing mortgage — the deed transfers but the loan stays in the seller's name.
Balloon Payment
A large lump-sum payment due at the end of a loan term that pays off the remaining balance.