What is Seller-Financed Real Estate?

Working together directly, a Buyer and Seller of real estate can create a legal contract with Seller-Financing to fund the transaction and avoid the costs and hassles of a bank-financed mortgage loan.

In such a Seller-Financed contract, the Buyer makes monthly payments on the purchase price of the property to the Seller (instead of to a Bank), and those payments include interest on the balance of the purchase price owed.

The Seller does not provide any actual cash to the Buyer through this deal; it is merely a contractual loan on the property.

Seller-Financing provides the Seller with an expanded pool of potential Buyers that the banks have ignored; permits a Buyer to purchase a property without paying mortgage insurance or completing reams of burdensome paperwork; allows the parties to set their own terms of contract including the amount of the down payment, the time period, the interest rate, etc.; and allows both parties to avoid the fees and costs typically charged by a Bank for their mortgage loans.

In most cases, seller-financed real estate contracts take one of two basic frameworks (but there are other options as well):

1) a Land Contract, where the Seller retains title to the property until all payments are made then the Deed is provided to the Buyer for filing upon receipt of the final payment;

or

2) a Seller-Financed Mortgage Contract, where the Seller transfers title to the property at the outset of the transaction using a Deed then takes a mortgage position as security on the transferred property until receiving the full amount owed from the Buyer.

 
Pros and cons exist for each party under either basic contract format (some state-specific!); to get a full understanding, see the information detailed in other posts in this Learn More section.