Seller financing

Seller financing is a loan provided by the seller of a property or business to the purchaser. When used in the context of residential real estate, it is also called "bond-for-title" or "owner financing."[1] Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments (usually on a monthly basis) over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller, this is an investment in which the return is guaranteed only by the buyer's credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial, because he/she may not be able to obtain a loan from a bank. In general, the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.

There are no universal requirements mandated for seller financing. In order to protect both the buyer's and seller's interests, a legally binding purchase agreement should be drawn up with the assistance of an attorney and then signed by both parties.

Secondary market

There is a secondary market for seller financed debt instruments. Many companies and investors look to purchase properly structured debt instruments as investments.

Seller financing in housing

In the United States, seller financing has emerged as a way for people with poor credit a path toward home ownership following stricter regulations placed on mortgage lending following the subprime crisis of 2008. Unlike a regular mortgage, in which the buyer gets the legal title to the house, the buyer in seller financing does not receive the legal title until they have fully paid off the purchase price of the house. This means that if a buyer misses a payment, they can be evicted and lose all money and interest put into the house. In addition, the buyer is often responsible for repairs, taxes and insurance, meaning that they have the responsibilities of being a homeowner without the rights of actually owning the property. Seller financing contracts are subject to fewer consumer protections than mortgage loans in most states.

While seller financing can provide a unique way for people with low credit scores to obtain a path to home ownership, they are considered predatory by groups such as the Center for American Progress. In addition, some investment firms have shied away from getting involved with seller financing out of fear for their reputations. A 2012 study of seller financing contracts in Maverick County, Texas found that less than 20% of people who signed such a contract ever came to fully own the home.[1]


Seller/buyer benefits:


See also


  1. 1 2 Perlberg, Heather. "Apollo's Push Into Business That Others Call Predatory". Retrieved 2016-04-11.

External links

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