Real Estate Finance
What Is Seller Financing?
Seller financing — also called owner financing — is an arrangement where the property seller agrees to accept installment payments from the buyer instead of requiring the buyer to obtain a traditional bank mortgage. The seller essentially becomes the lender, holding a promissory note secured by the property.
Common Seller Financing Structures
Purchase Money Mortgage
Buyer receives title at closing. Seller holds a mortgage on the property as security. If buyer defaults, seller can foreclose. Most flexible structure — negotiable terms on rate, down payment, and term.
Land Contract (Contract for Deed)
Buyer makes payments but does NOT receive title until the loan is fully paid. Seller retains title as security. Common for buyers with poor credit who can't qualify conventionally. Buyer takes possession but seller holds deed.
Seller Second Mortgage
Seller finances part of the purchase price (often to cover the down payment gap) while a bank handles the first mortgage. Helps buyers who need assistance with the down payment. The seller's note is a junior lien.
Due-on-Sale Clause Risk
If an existing mortgage has a due-on-sale clause, transferring the property without lender consent can trigger the full loan balance becoming immediately due. Agents must check for this before structuring seller financing deals.
Real Estate Exam Key Points
In seller financing, the seller acts as the lender
Buyer signs a promissory note; seller holds a mortgage as security
Land contract: buyer gets possession but not title until paid in full
Purchase money mortgage: buyer gets title at closing
Due-on-sale clauses on existing mortgages can complicate seller financing
Dodd-Frank Act limits how frequently individuals can offer seller financing
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