Reasons for Using Seller Financing

• The most common reason to use seller financing is being denied a conventional mortgage due to fair, poor or no credit.
  An individual may have enough money for a down payment but not be able to obtain a mortgage. In this case, the seller of the property can take the down payment and hold the mortgage for the buyer. More commonly the seller will hold a second mortgage on a property for the down payment or a portion of the mortgage. Someone may qualify for a mortgage but not for the amount that is needed to buy the property.
  The buyer can use the seller financing now and refinance when qualifying later.
  Refinancing a current loan is much easier than getting an original loan, so seller financing can be very beneficial to a buyer even if he has to pay a higher interest rate for awhile.
  
  

A Seller Held Mortgage

• Whether it is a full first mortgage or a partial second mortgage, a seller will have an attorney draw up a mortgage and a note for the buyer to sign. Then it will be recorded at the county courthouse. This puts a lien on the property, and the seller will have the right to foreclose on the property for breach of contract.
  Most seller-held financing carries a higher interest rate than conventional lenders. Normally, sellers won't give a 30-year loan, either. The most common time frame, depending on the type of mortgage, is 5 to 10 years. This still gives a buyer plenty of time to clean up his credit, or make more money and refinance the loan.
  
  

Why Sellers Agree to Take Back a Mortgage

• Sometimes, the seller actually wants to hold the mortgage because it has a better return on his investment than other investment avenues. In other cases the seller doesn't need all of the money from the sale to move on, and it's the best way to get the property sold.
  If the seller owns many investment properties and has already sold some, he may want to wait for the profit to offset income taxes. Most important, sellers usually end up getting a better price for the property if they are willing to hold all or a portion of the mortgage.
  Whatever the seller's reasons are, if the buyer has no other way of purchasing the property, it is always a good option.