In a seller financing arrangement, the seller acts as the:
Correct Answer
B) Lender, holding the promissory note and receiving the buyer's monthly payments
In seller financing (also called owner financing), the seller extends credit directly to the buyer instead of the buyer obtaining a loan from a bank or mortgage lender. The seller holds the promissory note and receives monthly principal and interest payments from the buyer. The loan is typically secured by a mortgage or deed of trust on the property. This arrangement can benefit buyers who have difficulty qualifying for conventional financing and sellers who want to generate ongoing income or defer capital gains.
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Related Topics & Key Terms
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Related Concepts
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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