Seller Financing

[Daniel Patton]

How does "Seller Financing" typically work?

[Jeff Copeland]

Say you are buying my house for $100k:

I agree to finance it at 6% for 20 years with 20% down.

You give me $20,000 at closing as a down payment, I record a mortgage for $80,000, and a we execute a promissory note outlining the repayment terms.

You pay me $573/mo for 20 years, for a grand total of $137,555 (these numbers are from any standard mortgage calculator if you plug in the loan numbers at $80k / 6% / 20yrs).

So - seller financing works exactly like bank financing, except the seller is doing the financing....hence the name.

How do you get seller financing? You either have to ask for it, or look for it. 

Some MLS listings will have a "seller financing" box checked on the listing (which means you can search/filter for properties offering seller financing in the MLS) if it's being offered up front.

With private sellers and off-market deals, you just have to talk turkey and negotiate a deal just like any other term. Whether it makes sense for the seller obviously depends on 1) how much cash they need right now (as a down payment) and 2) when they need the rest of the cash. If they're looking for a place to park their money and earn interest, seller financing is a nice, safe way to do that, with a secured asset as collateral.

Side note - a hard money loan works in almost the same way, expect it's for a much shorter term (usually a year max) has an origination fee and a much higher interest rate, and the payments are interest only, with a balloon payment due on sale or at the end of the term.

Hope that helps!