Top 5 steps to know: How to structure a seller financing deal?


Do you want to know How to structure a seller financing deal? A seller financing deal is basically an agreement where the seller manages the mortgage process as a financial institution. The buyer signs the mortgage with the seller instead of applying for a conventional bank mortgage.

Saving money for sellers is desirable to buyers who are not eligible for mortgages. This puts buyers in a risky zone, but the buyer is maybe someone who is familiar with this situation. Because of your personal relationship, you know the buyer is responsible and will continue to pay you.

If the buyer has good tenants, the risk factor will decrease because you already know the person” the buyer.”


How does seller financing work?

So let’s discuss how to form a seller financing agreement. There are multiple strategies that you have to achieve:

Strategy 1: You can buy with seller financing and lease the property to tenants. You cannot deal with banks or private donors. So, let the seller talk to your bank or donors.

Strategy 2: You can buy with seller financing and flip the deal to another investor. This deal will be quite attractive to someone else’s investor for the reasons mentioned above. And you can usually collect a lot more than a normal wholesale fee.

Strategy 3: You can buy through seller financing, bring a private investor or your own money to reform, then flip to the retail buyer. Again, your bank here as a short-term seller until you flip the contract.

Strategy 4: You can buy with investor money or your own cash or seller financing. Seller financing will allow you to order at a much higher price despite zero repossession of the property.

Strategy 5: This last strategy is compelling and has some explanations-


  • You can buy property using investor money.
  • You have set up financing notes (first and second) for two sellers and will sell using those notes with financing.
  • You can sell the first mortgage and hold the second mortgage (known as the “tail”) – which is all cash flow.
  • Selling the first note allows you to pay your investors in full. But in this case, you are not the property owner, you are not the first note owner, but you are the owner of the second note (called “tail”).
  • Two note that you are a debt-free owner. It is a real cash flow.

Ways to approaching sellers:

Honestly, there are no rules in your purchase agreement. it’s a piece of blank paper, and you can mark that you are a “member.” However, the seller may have some disclosures that you must include using state and federal law.

When you present the agreement to the seller, make sure that you put together an appointment schedule because it makes your offer more attractive.

Your sellers will also see how much more they are getting if they go through the traditional way of selling through an agent, MLS listing, closing costs, etc.

You don’t need to give your sellers a solution just because they don’t like your solution. But if you provide them with multiple solutions, you are more likely to help them.

If you can compare their three offers, for example, with your single offer compared to other investors’ offers – you win, regardless. So offer them: 

1) cash within 15 days, 

2) cash within 45 days, or 

3) seller financing.

If they agree to do business with you, you will either terminate the contract or hand over the contract to the buyer. And again, there is a huge buyer pool for this type of financing. Mark buyers pay you, and it often ends up costing you more than moving away from the practical contract.

5 steps to follow on how to structure a seller financing deal

Get professional help.

Seller financing, although it is a simple concept to understand. But it is also complicated to set up at the same time. It will be a good idea to hire a professional attorney to build the contract structure and help the tax professional make sure you set up the contract conveniently.

If you hire a professional doesn’t mean your job will end. You are just entering into a large financial transaction like this; it’s a good idea to understand as much as possible. These next steps can give you an idea of ​​what might happen next.

Write a commitment note.

A commitment note is a legal document like a lease, and you can use a mortgage loan in place. The main aim of the lease is to spell out the details of the agreement. Promise note is the promise to pay you for the buyer’s property. 

All the contact details will be in the commitment note, such as the amount of repayment, interest rate, terms, consequences of non-payment, and how much down payment you need. Both buyer and seller will have on the note.

Use your property as collateral.

You can use your property as collateral that acts on the promissory note. If your buyer defaults on the payment, the deal is closed, and you keep the house.

Accept down payment

You can be flexible in accepting the down payment. Although you can make a sales-financial deal and not ask for anything down payment, it is better to collect something. 

This makes it less likely that the buyer will walk away, and if they do, you will have to keep the down payment. Collecting 10 percent or more is something like dealing for it.

Determine the interest rate

Suppose you are the payer here, so it is advisable to collect some interest for your loan. But you don’t have to turn it into a shark. Ask for an interest rate comparable to what banks in your area charge.

The last row

It is easiest to enter the sales-finance system with your own property free. If you still have a mortgage on your property, you still need permission from your original property owner to make the deal.

Read also: Top 10 steps to follow: How to buy an existing business.

FAQ: How to structure a seller financing deal

How do you calculate seller financing?

Follow three simple steps:

  1. Get the current principal balance and interest rate from the land contract or commitment note.
  2. Record the balance according to the interest rate.
  3. Divide by step 3:12.
  4. A seller-financed note has a balance of 100,000 at 8% interest.

Who puts the title on seller financing?

The agreement states that you will keep the seller’s property until you pay off. You need to pay the amount in the same way as a regular mortgage in a periodic payment. If you do this, the seller will sign you for transferring a deed.

How does seller financing work?

In financing the sellers, the seller assumes the role of the donor. The seller gives the buyer enough credit for the property’s purchase price, minus any down payment instead of cash. Then, the buyer usually pays interest over time, generally with interest.

Is ownership financing like rent?

Although these are similar in some ways, there are key differences between the two strategies. Provides buyers with the option of testing before buying property on their own rent. On the other hand, ownership financing allows them to purchase direct investment assets (without any bank).

Is the seller financing a good idea?

Owners’ finances can help sellers sell quickly and help buyers secure a traditional fixed mortgage even though it means not only securing a conventional mortgage. A buyer may stop paying at any time, and a seller may end the forecasting process.

Read more: Top 10 steps to follow: How to finance the purchase of an existing business