All about seller financing

by Leona "Kay" Lehmer 12/11/2023

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Seller financing is an option for buyers and sellers to work together without a traditional mortgage. Also called owner financing, this type of financing involves the seller providing funding for the home in the form of credit. 

Since sellers are often more flexible with financial requirements than banks, this can be an excellent option for a buyer with subpar credit or other financial issues.

Here is some more important information about seller financing arrangements:

How does seller financing work?

In seller financing, the seller acts as the mortgage lender rather than a bank or financial institution. There are typically fewer closing costs involved and different requirements for home appraisals.

Types of seller financing agreements

Different types of agreements are available to fit a wide range of scenarios. The most common types are:

  • Land contract.
  • Assumable mortgage.
  • Lease purchase agreement.
  • Land loan.
  • Holding a mortgage loan.

Mechanics of seller financing

In a seller financing agreement, both buyer and seller sign a promissory note with the specific terms of the loan. The buyer pays the amount back with an agreed upon amortization schedule, usually with interest. A seller financing deal often offers the short-term option of requiring a balloon payment within the first several years.

Tips to reduce the seller's risk

Just like a bank or mortgage lender, you take a risk when offering a seller financing agreement. If the buyer defaults on payment, you could be subject to serious legal fees. However, there are some steps you can take to serious legal fees. However, there are some steps you can take to reduce your risk as the lender and seller:

  • Require at least a 10% down payment.
  • Use a complete loan application just like a traditional lender would require.
  • Work with a real estate attorney & knowledgeable real estate agent for help during the process.

Is seller financing a good way to sell your home? If you've paid off your existing mortgage, it can be a great way to make a sale in a tough market. However, many sellers would rather not take the risks. Ultimately, you'll have to weigh the pros and cons in your specific situation.

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About the Author
Author

Leona "Kay" Lehmer

I have been in the real estate industry for over 25 years!  I started working with some of the top builders in Tampa and then decided to pursue my general real estate license.  I love working with people and helping them find the home of their dreams.  The TampaBay Metro area(Tampa, St Petersburg, Clearwater...)is a great City and has grown unbelievably in the past 25+years.  I have extensive knowledge that I can share for those coming to the Florida area or those who want to move up or downsize or have to leave our great state.  I make it my goal to work for you to find the right home, whether it be upsizing or downsizing, I will find the best location for you! From the beaches to golf course to the city or country, I can find the perfect home for you!  When you call my phone, you get ME! You are not handed off, if I don't know the answer to a question, I will find out and get back to you!  I Work FOR YOU!!