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GUIDE:  How to Use Owner / Seller Financing to Sell a Property

In response to the many questions we receive on this topic, we’ve prepared a general Guide to assist you in your decision-making. Shown below are some of the highlights. For more detail and additional information, you can download and view the complete Guide in PDF format, as well as a Property Sales Calculator  in Excel.

reading through the entire Guide, please give us a call - if you have additional questions or need help in structuring your planned transaction.

         Here are the most frequently asked questions:

1. Should I sell my property with owner / seller financing?

2. How do I sell my property with owner / seller financing?

3. If I take back a mortgage, how much will you pay for it?

Before proceeding, it’s important to first define the terms and to understand the process. Typically, when someone sells a property, the ‘normal’ method is to have an institutional mortgage lender (a bank or mortgage company) provide the funds for the buyer. This is done through a mortgage loan, which consists of a promissory note secured by a mortgage deed or deed of trust on the property. The loan amount that’s provided by the lender is based on a number of factors: type of property, credit of the buyer(s), use of the property, income to debt ratios, amount of down payment, etc. The lender analyzes all of this information to evaluate their risk in the transaction, to determine whether or not the buyer can repay the loan.

With owner-financing, the seller of the property is the lender, thus is subject to the same risks as would any mortgage lender – but generally without the tools and level of expertise to evaluate risk to the same degree; or to handle problems should they arise.

In many cases, the party providing the owner-financing wishes to “cash out” - by selling the mortgage loan to an mortgage investor, rather than just receiving the flow of monthly payments. The investor will in turn use those same (above) risk factors in determining whether or not they will buy the mortgage loan, and how much they will pay for it.

            If the mortgage investor won’t buy the mortgage loan, then the holder (you) can’t cash out !

Q   Should I sell my property with owner / seller financing ?

A.  You first need to compare the pros and cons of mortgage lender (bank) financing versus providing the financing yourself:

Bank financing:
  • You receive all of the money from the property sale.
  • Generally, will provide a larger mortgage loan than an mortgage note investor will purchase.
  • Will pay off underlying liens / mortgages at time of funding.
  • The lender takes all of the risk.
  • The approval process may be time-consuming.
  • Not all buyers will qualify under lender guidelines.
  • Closing costs and or lender fees may be high
Owner financing
  • It may expand the market of potential buyers for your property.
  • The approval / qualifying process will likely be "somewhat" easier.
  • You take all the risks, if the mortgage can’t be sold.
  • You will take a discount when you sell the owner-financed mortgage.
  • You may not be able to do a "simultaneous closing" - see below

Q   How do I sell my property with owner / seller financing ?

A.  As mentioned above, with owner-financing, you are the lender. Just as the banks do, you need to pre-qualify the potential buyer. In addition, you will be somewhat more involved in the overall structuring of the property sale transaction.

Offering the property for sale:

As a first step, you need to know the real market value of the property you are selling. We strongly suggest having a full appraisal done, by a state-licensed appraiser. In considering purchasing the mortgage loan that you plan to sell, a mortgage investor (for the period of one year from the date of the property sale by you) will use the lesser of the sales price or the appraised value. For example, if the property appraises at $ 100,000 and you sell it for $ 90,000, the mortgage investor’s price to you will be based on the lesser property value. Because you’re providing owner financing, selling the property at full or very close to the appraised value is not unusual, and the appraisal you’ve obtained supports that value.

To protect yourself against committing to provide financing for someone who turns out to be not qualified, you should consider stating in all your ads and subsequent Purchase contracts: “Seller may finance, subject to Seller approval” or similar wording suggested by your legal advisor.

Qualifying the potential Buyer(s):

As the lender, you need to know as much as possible about the Buyers in order to (a) determine
whether they qualify as buyers; and (b) if so, for you to use this information as a basis in structuring the overall deal.

Form 1003. Uniform Residential Mortgage Loan Application. Your can download this free form off the internet; keywords “form 1003”). The applicant should fill our all personal information - except for the details of the requested mortgage loan - and sign and date the Form. The information provided, among other things, tells you whether or not they have the down payment money.

Credit Report: Used in conjunction with the amount of the actual cash down payment, this is the single most important factor in determining the marketability and value of the owner-financed loan that you intend to sell. Simply asking, then getting the reply, “My credit’s very good, etc.” doesn’t work. All mortgage lenders and mortgage investors work with actual credit reports and credit scores, as should you. In general, and in today’s market, a credit score below 650 is not considered to be “good.”

Along with the completed Form 1003, you should require that the potential buyers provide you with a copy of their current credit report. They can obtain their report for free or at a nominal charge over the internet from a number of websites, including, (tel: 877-322-8228);,,

Structuring the Property Sale and Mortgage Financing:

One of the factors involved in analyzing risk is the loan-to-value (LTV): the amount of the (new) mortgage balance divided by the value of the property; i.e., $ 75,000 mortgage loan / $ 100,000 sales price = 75% LTV. Acceptable LTV’s vary, depending on the type of property. A single family owner-occupied property will allow for a higher LTV than will a commercial property or a land-only property. 

Note:  Please see the full Guide for additional information and examples. 

Q  If I take back a mortgage, how much will you pay for it?

A  Every mortgage note is evaluated on a case-by-case basis, taking into account all of the various risk factors: type of property, occupancy of the property, credit of the buyer(s), use of the property, income to debt ratios, amount of down payment, etc.

The bottom line: Once the mortgage investor has done their analysis of the risk factors, the price that will be paid for the mortgage note then comes down to the lesser of:

The maximum amount they wish to put into the specific deal; and

The price they need to pay to obtain the yield that they desire.

Conclusion: Based on all of the above, it should be clear that all of the above “risk factor” information is needed to provide you with an accurate quote.

We hope the above information has been helpful to you. As you can see, “Owner-financing” is not quite as simple as it’s sometimes made out to be. The key to using it successfully is to first obtain all of the necessary information – before committing yourself to being the lender. Then, based on the quote you receive from us, you can determine whether or not owner-financing is the best sales / financing vehicle for you to use.  

Reminder: Before calling us, and for a fuller understanding of what is involved in the owner - financing process, don't forget to first download and thoroughly review  the complete Guide ; and also try some tests of the numbers using the Property Sales Calculator

Disclaimer: The information provided herein has been provided as a response to reader’s questions, and is intended as a general Guide only, and is not be construed as a quotation, or as legal, accounting or financial advice. American Funding Resources, Inc. shall not be held liable for any improper or incorrect use of the materials or information contained and assumes no responsibility for any user's use of them. In no event shall
American Funding Resources, Inc. be liable for any damages, whether direct, indirect, incidental, special, exemplary or consequential (including, but not limited to, business interruption or loss of use, data, or profits) regardless of cause, and on any theory of liability, whether in contract, strict liability, or tort (including negligence or otherwise) arising in any way out of the use of the materials and information contained herein

Users are encouraged to consult with appropriate and accredited professional advisors for advice concerning specific matters before making any decision, and American Funding Resources, Inc. disclaims any responsibility for positions taken by individuals or corporations in their individual cases or for any misunderstanding and losses, directly or indirectly, on the part of the users.

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