Seller Financing

When a property owner agrees to payment of a portion of a home’s purchase price over time, with the debt to the seller registered on the title as a mortgage, it’s known as seller financing, a vendor take-back mortgage or a purchase-money mortgage. This is a home-financing strategy in which you the buyer borrow from the seller instead of or in addition to a bank or traditional lender. Seller financing is usually used when a buyer can’t qualify for a bank loan for the full amount and when the seller is willing to gain a sales commitment but not as concerned with getting the full sales proceeds immediately.

A seller agrees to lend money to the buyer to purchase and close on the property in a seller financed real estate transaction. The seller is basically assuming the role of a banker and as such carries back the loan. As a buyer, you negotiate a down payment with the seller then send regular, monthly payments to that person over the life of the loan as negotiated. This financing option is flexible in that sellers or buyers can determine the structure of the loan, repayment period, interest rate, late charge provision and other variables. The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and the seller.