What is Seller Financing?

When a seller allows a buyer to make payments over time for the purchase of property, it is known as owner financing or seller financing. This private financing by the seller can take the place of a bank loan or be in addition to a conventional mortgage.

The payment amount, interest rate, and other terms are agreed upon between the buyer and seller. The amount financed by the seller will depend upon the buyer’s down payment and whether there are any bank loans.

Here’s an example of how it works.

An owner advertises his or her house for sale, either on her own or through an agent.

A buyer makes an offer, and they agree upon a sales price of $175,000 with a 10 percent down payment of $17,500.

Rather than requiring the buyer to obtain a bank loan, the seller carries back the balance of $157,500 in the form of a note and mortgage. It could also be a note and deed of trust or a real estate contract, depending on the customary documents for that state. A title company or real estate attorney is often used for the closing.

The note spells out the terms of repayment. In this case they agree upon 8.5 percent interest at $1,211.04 per month based on a 360-month amortization. The seller doesn’t really want to wait a full 30 years for payments, so the note requires payment in full, known as a balloon payment, within seven years.

Because the buyer is making payments to the seller rather than an institutional lender, the legal arrangement is called a private mortgage, seller carry-back, installment sale, or owner financing.

The seller has the same mortgage rights as a bank, so if the buyer does not make payments, the seller can foreclose and take the property back.

When the seller prefers cash today rather than payments over time, the rights to future payments can be sold or assigned to a note investor on the secondary market.

Learn the Value of Your Mortgage Note

Wondering just how much your mortgage note is worth?

The value of a note or contract is affected by many factors including the:

  • Down Payment
  • Terms of the Note
  • Buyer’s Credit Rating and Payment History
  • Type of Property Sold and Its Current Value

Since each transaction is unique, we offer a free note analysis based on your individual situation. more “Learn the Value of Your Mortgage Note”

How to Sell Your Mortgage Note

Want freedom from collecting payments for the next 10, 20, or even 30 years?

Prefer a lump sum of cash today?

If you sold property with seller financing chances are you’ve wondered about selling the real estate note. Here’s how to sell a mortgage note, trust deed, or contract in 7 easy steps.

more “How to Sell Your Mortgage Note”

Why Sell My Mortgage Note?

Accepting payments on the sale of real estate might have made sense at the time, but circumstances change.

Many sellers discover they would now prefer cash today rather than the small amount that trickles in each month.

Here are just a few reasons people have sold all or part of their seller financed mortgage notes for cash:

more “Why Sell My Mortgage Note?”

Can I Sell Part of My Mortgage Note?

Owner Financing doesn’t have to mean waiting years or decades to receive money.

Sellers have the choice to sell all or just part of their future payments for cash today.

Option 1 – When note buyers purchase all the remaining payments on a land contract, mortgage note, or trust deed it is considered a full purchase.

Option 2 – When the note buyer purchases just a portion of the remaining payments it is considered a partial purchase.

more “Can I Sell Part of My Mortgage Note?”

Use Outside Closings To Sell Mortgage Notes!

Ready to sell mortgage notes?

Protect yourself with outside closings!

When an investor has performed their research and is ready to purchase a private mortgage note they will ask the seller to deliver original documents (note, recorded mortgage, etc.) and sign the transfer package.

The Note Buyer

The note buyer will want these original documents before the funds are released to the seller.

The Mortgage Note Seller

A note seller may understandably wonder,

“How do I know I will ever receive my money once I turn over the documents establishing ownership?”

The Note Buying Challenge

So the note buyer wants the documents before the money is released and the seller wants the money before the documents are released.

The Solution

Using an outside closing through a title company, attorney, or escrow company easily solves this impasse. The outside closer will act as an independent third party (or fiduciary) protecting the interests of both parties.

An outside closing is basically an exchange of money for documents. The outside closer will receive the proceeds from the investor into their trust account and also receive the documents from the seller. It is not necessary for either the investor or the seller to physically be present for the note closing with the use of overnight delivery and wire transfers.

The fee for outside closings average $200 – $400 and can be paid by either party or split equally. Any legitimate note buyer should be willing to participate in an outside closing through a licensed and bonded closing agent.

Outside closings offer protection and peace of mind to both sellers and investors when selling mortgage notes.