Definition
Owner financing (seller carryback) is when the seller acts as your lender, financing your purchase through a promissory note. You and seller negotiate terms directly. It's useful when traditional financing isn't available, but you get fewer protections than with bank loans.
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Owner financing (also called seller financing) provides an alternative to traditional bank mortgages. The seller and buyer negotiate terms including interest rate, loan term, and down payment. The buyer receives a deed and the seller holds a promissory note secured by a mortgage on the property. Owner financing is common for properties that don't qualify for conventional financing, land sales, or when sellers have specific financial goals. The seller retains security interest and can foreclose if the buyer defaults. Owner financing terms are often more flexible than bank loans but interest rates may be higher.
Pro Tip
Owner financing offers flexibility but ensure the property qualifies for institutional financing later if you need to refinance or sell.
Example
A seller willing to finance offers to sell their property for $300,000 with 10% down ($30,000), 6% interest over 20 years, providing the buyer alternative financing when bank loans aren't available.