How does seller finance work?

Question

I have a house under contract, the bank was giving me trouble so the seller and I agreed to seller finance. We have agreed to a price, interest rate, downpayment, and balloon payment terms, and would be to 30 years.

Now that all the terms are agreed to, what are the next steps? who can prepare the paperwork for us? do I go to a title company? the seller and I have our own agents because we originally tried the conventional way, and we still want our agents to get paid.

any guidance on the next steps and how the process works is greatly appreciated.

Owen Dashner · Answer

Have an attorney draw up the agreement. Depending on your state, you will likely need either a Deed of Trust or a mortgage, a promissory note, and potentially a personal guaranty (if the seller requires it).  Once the docs are drawn up, you get them signed and notarized and have either the attorney or title company record the financing instruments with the county recorder.

David Delmar · Answer

Hey Alvaro:I am a real estate attorney. Owen is absolutely right - if you’ve agreed to terms, next step is to get the legal documents in order. The seller will want a deed of trust or mortgage to secure the loan, in case you default, so you’ll need to prepare that. The promissory note itself, which you’ll also need, is the formal legal document that extends the loan to you from the seller. If you negotiated a guaranty (someone other than you the seller can go after if you fail to pay) then you’ll need that also, but I personally would advise against a guarantee. The seller’s best recourse if you fail to pay will be to quickly and easily foreclose the deed of trust and take the property back.

Be aware that there are powerful ways you can create an advantage for yourself and protect yourself by including certain terms in the note and deed of trust, so definitely have an attorney draw up the documents and if the seller will allow it, you should draft them:

Eliott Elias · Answer

The title company will draft up a promissory note and outline all the terms you two agreed to.

How does seller finance work?

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