The practice of seller financing goes by many names, including purchase-money mortgages and owner financing. But in its simplest terms, it describes a form of real estate lending transaction in which a property owner also serves as a mortgage lender. This unique situation in the home selling process eliminates the need for a financial institution to handle financing agreements and negotiations.
Seller financing is championed by some property owners and real estate pros as a way to help home buyers qualify for additional mortgage opportunities, reduce the amount of red tape associated with home sales and improve profit margins on lending. But while seller financing effectively sees a seller provide a buyer with direct financing, it comes with pros and cons attached, as does any nontraditional mortgage option.
Noting this, it’s important to do your research and consult with a qualified professional before entering into a seller financing agreement.
Seller financing is a type of real estate agreement that allows the buyer to pay the seller in installments rather than using a traditional mortgage from a bank, credit union or other financial institution. A seller financing agreement functions along similar lines as a mortgage loan, except that it allows the home seller to own and oversee the debt instead of a traditional lender. Seller financing is also referred to as owner financing or purchase-money mortgages.
If you opt for a purchase-money mortgage (a mortgage that is issued to a home buyer directly by a property seller), then the seller will provide financing and handle the mortgage process, during which you will enter into a mortgage with the seller instead of a corporate lender. Seller financing’s advantages include no minimum down payment, homeownership access for those with poor credit and fewer regulations.