Creative seller financing terms / options?

Question

What are some of the most creative seller financing terms / options you have done to get a deal?

Marisol Gallegos · Answer

@Michelle Tolentino Seller financing can open up some interesting possibilities when the buyer and seller are willing to negotiate. Some options worth exploring include seller carryback financing, interest-only payments with a balloon payment, lease options, and wraparound financing where the existing loan structure allows it.

I think the key is understanding the seller’s motivation. Some sellers value a steady income stream, while others want a faster exit or a specific down payment. The terms can often be structured around those priorities.

Ryan Thomson · Answer

The most creative structure I've personally used: wrap an existing 2.75% FHA or VA loan with a seller carry on the equity portion.

Say the seller has a $380K balance at 2.75% and you're buying at $430K. They carry the $50K in equity at 8-9%. Your blended rate on the full deal lands around 3.6-3.8% vs taking out a new 6.8% loan. On a $430K purchase that's roughly $900/month in savings.

A few other structures worth knowing:

Interest-only on the carry keeps the buyer's payment lower and can get a deal done when day-one cash flow is tight.

Substitution of collateral is underused. The seller lets you swap the collateral to another property you own instead of the subject. Useful if you want to refi the purchased property later without triggering due-on-sale.

Split the note after closing. Sell the first to a note buyer for immediate cash, keep the second. Sellers who need liquidity but also want ongoing income sometimes go for this.

One important flag: if the existing mortgage is FHA or VA, the loan is legally assumable, not just wrappable. That eliminates due-on-sale risk entirely and brings the lender in cleanly. It takes 45-90 days and costs about $750 per side, but you get a fully sanctioned transfer of that low rate. I do these full-time in Colorado. DM me if you want to work through the math on a specific deal.

Don Konipol · Answer

@Ryan Thomson , you’ve mentioned some very creative seller financing techniques. These can be some very powerful WEALTH BUILDING strategies also.

2 you wrote about were the ‘WRAP’ and “substitution” of collateral. A seller sitting on a 2.75% interest mortgage is sitting on a goldmine, if they don’t mind the risk of continued mortgage liability after selling their property. They merely have to wrap the existing mortgage into an owner financed 8% mortgage with easy qualifying and on say a $500,000 loan they collect prox $25,000 PER YEAR on the interest rate differential. Of course this declines every year as the mortgage is paid off - unless they do an interest only wrap where they’re also building equity in the note. See “Invest in Debt” written 45 years ago by Jimmy Napier.

Substitution of collateral is much more difficult to put in place. Doing such with a rather naive homeowner/seller is questionable ethically and an attorney may also find legal arguments in the homeowners favor. Doing an owner financing with substitution of collateral with an investor, or for owner occupied commercial property a business owner, usually eliminates these issues, especially if the substitution is clearly explained. In the few times I have done it I was able to negotiate mutually agreeable protections for both myself and the seller/note holder. My favorite interest rate on these loans is 0%, and my favorite term is 25 years, though 15 seems to be more realistic. In 15 years I can “move” the mortgage 4 or 5 times, gaining equity ownership in properties each and every time.

Chris Seveney · Answer

Amongst both parties in a transaction, of your experience, the more complex you make a transaction, the less likely it would be to occur. You want something that all parties can understand. Sometimes getting too creative convolutes things, makes it more difficult, and also can have significant tax ramifications down the road.

For example, 0% financing for a seller is a very bad idea because they still pay taxes on interest even though they're not collecting interest.

John Clark · Answer

None. Seller financing for family members, fine. They’re blood. Joe blow off the street — come back when you have the wherewithal. Strangers and I am down on my luck? That’s why God invented bankruptcy.

And don’t get me started about subject to financing. If you think concealing facts is necessary to your transaction, then your business is wrong.

I don’t care how many snakes you see in the road.

Nicholas L. · Answer

@Michelle Tolentino

i've bought on seller finance. do you have more specific questions? in general i recommend seller finance only if you're well capitalized, and i don't recommend sub-to unless you're a highly experienced HNWI in a situation where it makes sense for all parties

Don Konipol · Answer

0 or very low interest rate, substitution of collateral, subordination of mortgage note, right of first refusal if note holder sells note at discount, split note into 1st and 2nd and sell 1st, package a number of seller financed notes and syndicate package, etc,

Michelle Tolentino · Answer

Seems like a lot more that goes into it it , I didn't even think that far ahead into it.! Thank you

Michelle Tolentino · Answer

Great point, thank you

Michelle Tolentino · Answer

Thanks, Nicholas! Quick context: this would be a brand-new seller carry, not sub-to. I'm trying to keep my cash-in low, but I don't want a balloon.

I'm thinking small down payment, interest-only for the first 2 years, then converting to amortizing until it's paid off. Have you seen sellers go for that? What would make a low down payment feel safe to a seller?

Or is there another loan structure I'm not aware of that would work better in my situation?

Creative seller financing terms / options?

Creative seller financing terms / options?

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