Seller financing.
What it actually means.

What it is

In a seller-financed purchase the seller takes the lender’s role. Instead of a bank funding the price at closing, the seller conveys title and accepts a promissory note secured by a mortgage or deed of trust, and the buyer pays them over time. Every term is negotiable — down payment, interest rate, amortization, whether a balloon comes due, and whether payments start immediately. It works best where the seller owns free and clear, because there is no underlying lender whose consent or payoff has to be dealt with.

How the terms are structured

The note names an amount financed, a rate, an amortization schedule, and often a balloon date. A $200,000 purchase with $20,000 down leaves $180,000 financed; at 6% amortized over 30 years the payment is about $1,080 a month, with the balance due at a balloon date commonly set at five to ten years. That structure is common because it gives the buyer a manageable payment and the seller a defined exit. The buyer plans to refinance or sell before the balloon, which makes that date the single most important term in the document.

Payment = amount financed amortized at the negotiated rate and term. $180,000 financed at 6% over 30 years runs about $1,080 a month; a balloon clause sets the date the remaining balance comes due.

How investors actually use it

Seller financing solves problems institutional lending will not. It closes quickly without an underwriting file, it can fund property types or conditions banks decline, and it keeps a purchase from consuming a conventional borrowing slot or worsening personal debt-to-income. It also creates room to trade terms against price: a seller who cares most about total proceeds may accept a lower rate, while one who cares about monthly income may accept a lower price for a better rate. Sellers with a large embedded gain often prefer installment payments for their own tax reasons.

The common mistake

Treating the balloon as a distant abstraction. It is a hard deadline, and if the property has not appreciated, stabilized, or seasoned enough to refinance by then, the options narrow to selling under pressure or losing the property. The other error is informality — these transactions still need proper title work, recording, and documentation. Seller financing implicates tax, lending, and disclosure rules that vary by state; have a qualified attorney and tax professional structure it rather than working from a template.