Glossary
Seller financing (owner financing)
Seller financing means the seller acts as the bank. Instead of getting a loan, you pay the seller over time under a note secured by the property.
Sellers who own a house free and clear sometimes prefer monthly income over a lump sum. For the buyer, seller financing can mean a smaller down payment, flexible terms or a faster close. Every term is negotiated.
It can also open deals that a bank would not fund, like a house that needs work or a buyer who is still building a track record.
How it works
You agree on a price, down payment, interest rate, payment schedule and term. Many seller notes amortize over 30 years but come due earlier as a balloon. You then pay the balance off with a refi or a sale.
- Purchase price
- $200,000
- Down payment (10%)
- $20,000
- Seller note
- $180,000
- Rate and amortization
- 6%, 30 years
- Monthly principal and interest
- $1,079.19
Terms are an illustration of one negotiated deal, not a typical offer.
What to watch
- The balloon. Run The Deal checks whether a refi at the balloon date could cover the balance. If it cannot, the deal carries real risk.
- Existing liens. If the seller still has a mortgage, a due-on-sale clause may apply.
- Legal paperwork. Notes, deeds of trust and any required disclosures should be drafted by an attorney. Some states regulate seller financing on owner-occupied homes.
- [DSCR](/glossary/dscr). Run The Deal scores seller finance deals on DSCR and on whether the balloon is covered.
Model the rental side with the rental property calculator.
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