What is Seller Financing?
What is Seller Financing?
When a seller allows a buyer to make payments over time for
the purchase of property, it is known as owner financing or seller financing.
This private financing by the seller can take the place of a bank loan or be in
addition to a conventional mortgage.
The payment amount, interest rate, and other terms are agreed
upon between the buyer and seller. The amount financed by the seller will
depend upon the buyer’s down payment and whether there are any bank
loans.
Here’s an example of how it works.
An owner advertises his or her house for sale, either on her
own or through an agent.
A buyer makes an offer,
and they agree upon a sales price of $175,000 with a 10 percent down payment of
$17,500.
Rather than requiring the buyer to obtain a bank loan, the
seller carries back the balance of $157,500 in the form of a note and mortgage.
It could also be a note and deed of trust or a real estate contract, depending
on the customary documents for that state. A title company or real estate
attorney is often used for the closing.
The note spells out the terms of repayment. In this case they
agree upon 8.5 percent interest at $1,211.04 per month based on a 360-month
amortization. The seller doesn’t really want to wait a full 30 years for
payments, so the note requires payment in full, known as a balloon payment,
within seven years.
Because the buyer is making payments to the seller rather than
an institutional lender, the legal arrangement is called a private mortgage,
seller carry-back, installment sale, or owner financing.
The seller has the same mortgage rights as a bank, so if the
buyer does not make payments, the seller can foreclose and take the property
back.
When the seller prefers cash today rather than payments over
time, the rights to future payments can be sold or assigned to a note investor
on the secondary market. Sand Dollar Notes is one such company that will buy these notes for cash. If you have seller financed a property and would like to know it's value, reach out by phone or email and we will give you a free no-obligation quote on the value of your note.
You can also use our free online Note Quote form at https://www.sanddollarnotes.com/onlinenotequote
April Banda
Head of Acquisitions
Sand Dollar Notes
559-648-3669
april@sanddollarnotes.com