Owner Financing
A sale in which the property seller acts as the lender, letting the buyer pay over time instead of getting a bank loan — creating a note the seller can later sell for cash.
Owner financing (also called seller financing) is a real estate sale in which the seller acts as the bank. Instead of the buyer obtaining a mortgage from a lender, the seller extends credit directly: the buyer makes a down payment, signs a promissory note promising to repay the balance with interest, and the seller secures that promise with a mortgage or deed of trust on the property. The result is a privately held mortgage note — exactly the kind of asset Mortgage Note Capital buys.
How an owner-financed deal is built
A typical owner-financed sale includes:
- Sale price and down payment — the financed amount is the price minus the down payment
- Interest rate — often higher than a bank rate to compensate the seller for risk and for tying up their money
- Payment and term — monthly principal and interest, frequently amortized over 20–30 years with a balloon payment in 5–7 years
- Security instrument — a mortgage or deed of trust recorded against the property so the seller can foreclose on default
Why sellers offer it
Owner financing widens the buyer pool to people who cannot easily qualify for a conventional loan, often supports a higher sale price, can spread the seller's capital-gains tax over time (an installment sale), and produces monthly income. The seller earns interest on money that would otherwise sit idle after a cash sale.
Why owner-financed notes get sold
The catch is that owner financing turns a lump-sum sale into a slow drip of payments. Life changes — a seller needs cash for a new purchase, a medical bill, a divorce, an estate settlement, or simply wants to be done managing a loan. That is when they sell the note to a note buyer for a lump sum, accepting a discount in exchange for immediate cash and the elimination of collection and default risk.
Compliance for home notes
When the buyer is an owner-occupant, the loan is a consumer mortgage subject to the Dodd-Frank Act and SAFE Act. Sellers who finance regularly, or who want their note to be clean and sellable, often originate through a licensed RMLO. Loans on investment property are business-purpose and generally fall outside those consumer rules.
What makes an owner-financed note valuable
The best owner-financed notes to sell are first-lien notes on free-and-clear property, with a solid down payment (lower LTV), a fair interest rate, documented seasoning, and clean paperwork. Structuring the deal well at the outset — and using a third-party servicer to document payments — preserves the option to sell later at the best possible price.