Knowledge Focus: Seller Financing
Seller Financing
A seller financing mortgage is seller based home financing where the buyer borrows from the seller directly instead of or in addition to the more typical bank or mortgage company. This means the owner participates in financing the buyer's purchase of the property, either in whole or in part. For example, this is done when a buyer cannot qualify for a bank loan for the full amount, so the seller takes back a purchase money mortgage to help finance the down payment. The purchase money mortgage is structured as a second mortgage, and the larger loan takes a first lien position. The terms of the loan, such as the interest rate, due date, and monthly payment, are negotiated between the buyer and seller.
In periods of high interest rates it becomes more difficult for home buyers to qualify for a mortgage and creative financing options like owner/seller financing (i.e., purchase money mortgage) becames more popular.
