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Expert Insights: What Is Seller Financing?

Home Exclusive QA
May 31, 2018
Reading Time: 1 min read
Many Buyers No Longer See Marriage as Prerequisite to a Mortgage

Also known as a purchase money mortgage, it is when the seller agrees to “lend” money to the buyer to purchase and close on the seller’s home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.

Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller’s favor.

The seller may take back a second note or finance the entire purchase if he owns the home free and clear. The buyer makes a sizable down payment and agrees to pay the seller directly every month.

The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction, and is generally influenced by current Treasury bill and certificate of deposit rates. The rate may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.

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maria

Maria Patterson has more than 30 years of experience in executive positions within B2B publishing, 18 of which have been spent as RISMedia’s Executive Editor, overseeing the creation and direction of RISMedia’s award-winning print and digital content, as well as providing strategic planning for RISMedia events. A graduate of NYU’s journalism school, she previously served as editor-in-chief at Miller Freeman in NYC.

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