Seller Financing Strategy?

Question

I would really appreciate it if anyone can convey to me this strategy of seller financing. I understand the concept, but I'm stuck discerning the step where the seller “takes back the loan” if there is no financial institution involved in the process. How does a seller issue you a loan?

Joe Villeneuve · Answer

They're not.  They are selling you their interest in the property.  When you use bank financing, you are buying cash from the bank and using it to buy the property by paying 100% of the sale price to the seller.  When you do seller financing, you don't need cash from the bank.  You are buying the property directly from the seller.  The seller is getting paid by you in instalments...monthly payments.

The payments usually involve interest on top of just the total cost of the property...just like you would pay to the bank if you bought money from them to buy the property.  The difference, is instead of you paying the bank the interest, you are paying that interest to the seller...which means that interest is added income to the seller.

Marquise Williams · Answer

Set on the agreed-upon terms, I begin to pay the seller in installments(plus points) and pay off his existing mortgage relatively. Neither party is gaining any funds from an institutional bank. I assume that's what you're saying, but why do they use the phrase "seller takes back the loan"?.