Seller financing (owner financing) is a purchase in which the seller extends credit to the buyer: the buyer pays a down payment at closing and the balance over time under a promissory note, secured by a mortgage or deed of trust on the property, with an agreed interest rate, payment schedule, and often a balloon date when the remaining balance comes due. Sellers offer it to widen the buyer pool, earn interest income, and spread their proceeds over time; buyers use it for properties or situations banks handle slowly or not at all. Federal and state rules regulate some owner-financed sales — especially to buyers who will live in the home — so documents should be drafted or reviewed by an attorney and closed through a title company.
The formula / structurePayment is computed from the note: principal, rate, and amortization set the monthly payment; term sets the balloon (remaining balance due).
Seller Financing: a worked example
Worked example. Price $160,000, down $20,000, note of $140,000 at an example 7% amortized over 30 years → about $931/mo principal and interest, with the balance (about $131,000) due as a balloon at year 7. The seller receives a down payment, monthly income, and interest — secured by a property they know.
What affects Seller Financing
- Negotiated price, down payment, rate, and term — they trade against each other
- Whether the seller owns free and clear (an existing loan limits what can be carried)
- Balloon date and the buyer's refinance plan
- Legal requirements for the note and disclosures
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