Seller financing is financing extended by a seller, instead of a bank, to a buyer. The buyer pays interest to the seller and is approved by the seller instead of the bank. The buyer and seller agree to the interest rate and the total term. They can choose to create their own documents or use an attorney to create the mortgage document and close the deal. And last but not least, the seller usually keeps a lien, or legal right, to the property in the event that the buyer discontinues payments.
Seller financing can be a great way for a credit-challenged buyer to secure a property without having to deal with a bank. As a result, seller financing is often more common during down times in the real estate cycle. On the seller’s side, if one of your long term goals as an investor is to have a portfolio of performing assets, you can have a monthly cashflow secured by real estate purchased via seller financing. Seller financing can be a great exit strategy as well.