Seller Financing

What it is

Seller financing is when the seller plays the role of the bank. Instead of getting a mortgage from a lender, the buyer pays the seller directly on negotiated terms: interest rate, term length, payment schedule, amortization, balloon date. The deal is secured by a mortgage or deed of trust on the property.

I’ve offered the pitch something like this to tired landlord sellers in their 60s or 70s: “Here’s your rental income for the next 10 years without any tenants or toilets, backed by the house as collateral.” For a seller who’s burned out on management, that can beat a higher cash offer from someone else. They get monthly checks, favorable tax treatment as an installment sale, and a clean exit without a capital gains hit in one year.

It’s one of the options — maybe the best option — for getting into a deal with zero or very little down when the seller is willing. Creative financing is having the seller fund the deal for you.

Why it matters

The terms are why this is powerful. Traditional lenders are rigid on rate, term, LTV, and underwriting. A seller making a one-off deal is rigid on nothing. I’ve done seller-financed deals at interest rates well below market, with interest-only payment periods built in, with no personal guarantee, with no seasoning requirement. None of those terms exist in a bank product. All of them exist because the seller agreed to them at the kitchen table.

Access is the second reason. Some sellers will carry a note who would never have sold through a normal MLS listing. The estate executor who needs the estate to close. The retired landlord who wants mailbox money instead of a lump sum. The elderly owner who’d rather have monthly income for 10 years than a one-time check and a tax bill. Seller financing reaches those deals that cash or conventional financing could not.

Speed is the third. A seller-financed close can happen in days because there’s no lender. No appraisal, no underwriting, no conditions. Title company writes the note and mortgage, both parties sign, deal closes.

How it shows up

The best case is a free-and-clear seller. If the seller still has a large mortgage, seller financing gets complicated fast — due-on-sale clauses, wraparound structures, subject to territory. Free-and-clear sellers are cleaner.

Structure the note to fit the exit. If the plan is to flip in six months, the note should allow payoff at any time without a penalty. If the plan is to hold as a rental, the note should have a balloon in 3-5 years, giving time to refinance into a dscr loan after seasoning. Match the note to the strategy, not the other way around.

The Pace Morby crowd pushes this as a replacement for the normal acquisition path. Be skeptical of that framing. Creative financing is a tool. It makes sense in specific situations: motivated sellers who want payment streams, pre-foreclosure rescues, portfolio acquisitions. Every seller-financed acquisition should cash flow on day one, or have a clear dated path to cash flowing. Creative financing is not a cheat code.

Related

subject to, hard money, dscr loan, private money, motivated seller, funding