a debt instrument taken back by the seller as part of the purchase price for a property. Such financing is used as an inducement to a sale when normal third-party financing is expensive or unavailable and in situations where the existing, first lien may be assumed by the buyer but the difference between the existing debt and ales price exceeds the cash resources of the buyer. Seller financing may be in the form of a senior or junior mortgage.
financing provided by the owner/seller of real estate, who takes back a secured note. The buyer may be unable to qualify for a mortgage from a lending institution, or interest rates may have risen so high that the buyer is unwilling to take on a market-rate loan. In order to sell their property, sellers offer to lend the buyer the money needed, often at a below-market interest rate. The buyer takes full title to the property when the loan is fully repaid. If the buyer defaults on the loan, the seller can repossess the property. Also called creative financing.
a debt instrument taken back by the seller as part of the purchase price for a property. Such financing is used as an inducement to a sale when normal third-party financing is expensive or unavailable and in situations where the existing, first-lien loan may be assumed by the buyer but the difference between the existing debt and sales price exceeds the cash resources of the buyer. Seller financing may be in the form of a senior mortgage or a junior mortgage.
Example: The Sextons offer their home for sale with an asking price of $200,000. The existing mortgage may be assumed by the buyer and has a principal of $80,000. One buyer offers to meet the Sextons' price on the condition that they provide seller financing in the form of a second mortgage of $80,000 subordinated to the existing loan. Another buyer will pay the asking price if the Sextons take back a wraparound mortgage for $150,000 in addition to $50,000 in cash.
