Seller Financing
Another name for owner financing — the seller carries the loan for the buyer, creating a privately held note that can be sold to a note buyer.
Seller financing is the practice of a property seller carrying the loan for the buyer rather than requiring the buyer to obtain bank financing. It is the same arrangement as owner financing — the two terms are used interchangeably across the industry — and it is the origin of nearly every note Mortgage Note Capital purchases. The seller becomes the lender, the buyer signs a promissory note, and a mortgage or deed of trust secures the debt against the property.
The forms seller financing takes
Seller financing is an umbrella that covers several specific structures, each with different ownership and risk implications:
- Note-and-deed-of-trust / note-and-mortgage: The cleanest form. The buyer receives title and the seller holds a recorded lien. This produces the most readily sellable note.
- Contract for deed (land contract): The seller retains legal title until the buyer finishes paying. Sellable, but the title structure requires extra diligence.
- Wraparound mortgage: A new seller note wraps an existing underlying loan that stays in place.
- Lease option / rent-to-own: Technically a lease plus a purchase option, not a true sale, so no mortgage note exists yet.
When evaluating a note for purchase, the structure is the first thing a note buyer identifies, because it determines who holds title and how recovery works on default.
Why it exists
Seller financing solves problems for both sides. Buyers who cannot qualify for a conventional mortgage — self-employed borrowers, those rebuilding credit, or purchasers of unusual properties — gain a path to ownership. Sellers gain a larger buyer pool, often a higher price, monthly interest income, and the tax benefits of an installment sale. The seller takes on the lender's role and risk, which is precisely why these notes carry higher interest rates than bank loans.
From financing to cash
The defining feature of seller financing is that it converts a one-time sale into a stream of payments stretching years into the future. Many sellers eventually want that money sooner — to reinvest, to settle an estate, to cover an emergency, or simply to stop being a lender. Selling the note to a note buyer converts the remaining payments into a lump sum today, at a discount that reflects the buyer's required yield and the note's risk.
Compliance and quality
Seller-financed loans to owner-occupants are consumer mortgages governed by the Dodd-Frank Act and SAFE Act; using an RMLO keeps them compliant and sellable. Regardless of structure, the most valuable seller-financed notes share the same traits: first-lien position, meaningful borrower equity, a fair rate, documented seasoning, and clean paperwork.