What Every Seller Should Know About Owner Financing

Even though interest rates currently make conventional loans more available to more buyers, seller financing is still a very good option for both buyers and sellers. It can really pay off, if you hold the right cards. That’s why home buying transactions involving seller financing of some sort can be attractive – more attractive in some areas than others, depending on local market conditions.


• Here’s how "seller financing" works.

A second mortgage offered by a seller is usually a short-term "balloon" note, with the buyer making fixed-rate monthly payments and paying off the balance within 3, 5, or 7 years. One very common seller financing arrangement is 10% of the purchase price, with the buyer putting down 10% cash and assuming the seller’s existing loan for 80% of the home’s value (figures will vary).

• This is what seller financing can do for a seller.

Speeds up the sale of your home.

Helps you get a better price for your home.

Provides you with a regular income.

Helps reduce capital gains taxes by spreading your profit over several years (especially advantageous in substantial financing).

Can provide a higher interest rate than on some other investments.

Gives you the later option (after your home is sold) of selling all or part of your second mortgage to another lender, mortgage broker or member of the secondary mortgage market – such as the Federal National Mortgage Association (FNMA).

• Watch out for these potential problems.

Possible buyer default on the loan, lapsed or slow monthly payments.

In case of foreclosure, you must outwait the first mortgagor for return of your money when the property is sold.

• Watch out for these potential problems.

Precautions seller-financers should take.

Check a buyer’s credit rating carefully.

Refuse to make your loan assumable.

Get at least 10% in down payment.

Structure your loan so that it can (if you wish) be sold to another lender.

We often have buyers on hand who are looking for seller financing, and we have sellers who are willing to finance. We’d be happy to help make a match. Please call or e-mail us with your real estate needs.