Seller financing

Seller financing is a loan provided by the seller of a property to the buyer, to cover part or all of the sale price. This process, also known as owner carry back or owner financing, is used in a variety of situations as a creative financing option. Examples are listed below:

An owner carry back can be used as a vehicle to sell a home if the potential buyer does not qualify for a loan that will cover the full cost of the property. Typically the owner carrying back the loan has substantial equity in the home, but this is not always the case.

Example 1: John and Linda have found the perfect home which happens to cost $350,000. They go to ABC Bank and apply for a loan, but because of their credit score and the state of the housing market, they can only get approved for $280,000. Dismayed, John and Linda speak with their real estate agent and express their disappointment at not being able to afford the house they want. The realtor then informs them that the owner is willing to carry back part of the purchase price, meaning that John and Linda will have a mortgage from ABC Bank for $280,000 and a private mortgage with Chuck for the remaining $70,000.

In this case, John and Linda will be repaying two parties for ownership of the home. The $280,000 from the bank will be paid back according to the interest rates and schedule determined by ABC Bank. The $70,000 the owner will carry back will be paid by John and Linda either directly to the owner, or through a third party servicer with all the terms and conditions agreed upon by both John and Linda and the owner.

Example 2: As in the above example, John and Linda would like to buy a home. However, this time when they visit ABC Bank they are told, due to their high amount of debt, they do not qualify for conventional financing at all. Once again, they go to their realtor who suggests that the owner may be willing to carry back the loan. The owner agrees and finances the couple for $350,000, terms are agreed upon, and the owner starts collecting payments from John and Linda.

If an owner decides they no longer want to collect the payments the owner can sell the note on the house, a process called note buying, to a company that provides such a service. In such cases, the owner will be paid a certain amount of cents on the dollar and get a lump sum instead of collecting payments over the life of the loan. The buyer of the note then assumes control of the deed, and John and Linda will begin paying the bank instead of the owner.

Another way an owner carry back would benefit an owner is, after the sale of the home, s/he would be receiving a steady monthly income. In some cases, owners can avoid paying capital gains tax on the sale of their property by carrying back the loan.

External links

* [http://www.finweb.com/mortgage-loan-education/seller-financing.html Seller Financing] at FinWeb

* [http://www.noteworld.com/corporate/faq.aspx Frequently Asked Questions About Seller Financing] at Noteworld

* [http://blog.seattlepi.nwsource.com/realestate/archives/121670.asp Resurrection of Seller Financing] Seattle PI


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Seller Financing — A real estate agreement where financing provided by the seller is included in the purchase price. It is also known as a purchase money mortgage. A purchase money mortgage is a mortgage given to the seller as part of the buyer s consideration for… …   Investment dictionary

  • seller financing — funding a purchase by a seller s loan to the buyer, the buyer takes full title to the property when the loan is fully repaid. Bloomberg Financial Dictionary …   Financial and business terms

  • financing agency — A bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment… …   Black's law dictionary

  • Owner Financing — When a property buyer finances the purchase directly through the person or entity selling it. This often occurs when the prospective buyer cannot obtain funding through a conventional mortgage lender, or is unwilling to pay the prevailing market… …   Investment dictionary

  • In-House Financing — A type of seller financing in which a firm extends customers a loan, allowing them to purchase its goods or services. In house financing eliminates the firm s reliance on the financial sector for providing the customer with funds to complete a… …   Investment dictionary

  • Creative financing — is a term used widely amongst real estate investors to refer to non traditional means of real estate financing, or financing techniques not commonly used. The goal of creative financing is generally to purchase, or finance a property, with the… …   Wikipedia

  • stapled financing — USA stapled financing, Also known as stapled papers. Business jargon for a pre arranged financing package offered to potential bidders in an acquisition. Stapled financing is arranged by the investment bank that is advising the seller in an… …   Law dictionary

  • Staple Financing — A pre arranged financing package offered to potential bidders in an acquisition. Staple financing is arranged by the investment bank advising the selling company and includes all details of the lending package, including the principal, fees and… …   Investment dictionary

  • Staple Financing — Der Begriff Staple Financing (auch: Stapled Finance, staple financing package) wird im Investmentbanking ein Finanzierungspaket bzw. eine Finanzierungszusage genannt, welche im Rahmen von Firmenverkäufen durch Banken im Auftrag des Verkäufers… …   Deutsch Wikipedia

  • bilateral financing instruction — The bilateral financing instruction is a type of two leg securities transaction instruction in which a seller acquires cash by selling securities (used as collateral) and simultaneously agrees to repurchase the same or similar securities at a… …   Financial and business terms


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.