What is seller financing?

A plain definition

In a typical sale the buyer borrows most of the price from a bank and the seller is paid in full at closing. With seller financing, the seller takes the bank's place for some or all of the loan. The buyer makes a down payment, then pays the seller directly, usually every month, under terms both have agreed in writing.

No cash changes hands from seller to buyer. The seller extends credit: instead of the whole price on closing day, they receive it over months or years, with interest.

Compared with a bank loan

The biggest differences are who decides, how fast it closes and what it costs over time.

How a deal is structured

Every seller financed sale sets the same basic terms, and each one is negotiated between buyer and seller.

• Purchase price. The total the buyer agrees to pay.
• Down payment. Cash paid at closing. The rest of the price becomes the loan.
• Interest rate. Charged on the unpaid balance; usually fixed and written into the note.
• Term. How long the buyer has to repay, and how often payments are due.
• Balloon payment. Many deals set monthly payments as if the loan ran 15 to 30 years, then make the remaining balance due in one payment after 5 to 10 years. Buyers usually refinance with a bank to make it.
• Who holds title. Usually title passes to the buyer at closing and the seller keeps a lien. Under a land contract the seller keeps legal title until the buyer has paid in full.

The documents

The buyer signs a promissory note, the written promise to repay on the stated terms. It is secured by a deed of trust or a mortgage, depending on the state, which gives the seller the right to foreclose if the buyer stops paying and is recorded with the county.

The other common form is a land contract, also called a contract for deed: title stays with the seller until the final payment.

What seller financing is used for

• Homes. For buyers who cannot get a mortgage, or houses that need repairs before a bank will lend on them.
• Land. Many banks will not lend on vacant or rural land, so owner financing is one of the most common ways land sells.
• Businesses. Small business sales often include a seller note, because lenders rarely finance the whole price.
• Vehicles. Private sales of cars, trucks and RVs sometimes use an installment agreement, with the seller keeping title until the last payment.
• Boats and equipment. Older boats and used machinery are hard to finance, so the seller may take payments and hold a lien.

Try the numbers

Change the price, down payment, rate and balloon to see how each one moves the monthly payment and the interest.

Legal notes

Seller financing is legal in all 50 US states. Which rules apply depends on the asset, the state and how many deals the seller does.

• For residential property, the Dodd-Frank Act and the SAFE Act can treat a seller as a loan originator. A seller who finances more than three residential properties in 12 months generally has to use a licensed loan originator. Below that, rules can still apply unless the loan meets conditions such as limits on balloon payments and a check of the buyer's ability to repay.
• States set their own rules on maximum interest rates, required disclosures and foreclosure.
• Use a real estate attorney to draft and record the documents, and a licensed loan servicer where your state requires one.

How it works on this site

Every listing on SellerFinanced shows the terms the seller will accept: the down payment, the rate, the term and the monthly payment that comes out of them. Many sellers list several options, for example less down at a higher rate.

Search the listings by the cash you have and the monthly payment you can manage. When you find one, message the seller or send an offer with your own terms; offers get a deal score so both sides can see how strong they are.