By: Scott Steinberg | Rocket Mortgage

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 also comes with pros and cons attached, as with 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.

What Is Seller Financing?

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 cuts out the middleman and allows the home seller to own and oversee the debt instead of a traditional lender.

If you choose to 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. Also sometimes referred to as owner financing or purchase-money mortgages, seller financing’s advantages include no minimum down payment, homeownership access for those with poor credit and fewer regulations. But these same upsides can quickly become disadvantages as well.

Seller Financing Advantages For Sellers

Seller financing may prove a good option for those wishing to lend money. Select upsides associated with providing it include:

  • Can produce significant capital gains tax savings over time
  • Faster time to sale, and ability to sell your property as-is without the need for repairs
  • Released from property tax, homeowners insurance and various maintenance expenses
  • Option to sell the promissory note to an investor

Who holds the title in seller financing?

Under the terms of seller financing, the buyer (Texas Made Investments) will take over the title and deed of the home. As a form of leverage, and the seller will hold a first lien position until the mortgage has been paid off in full.