It is very well-known that Owner Financing sells properties fast, especially in cases where properties or prospective Buyers do not conform to traditional lending/mortgage requirements. The Seller offers to hold the mortgage note (owner-financed mortgage) and receive the monthly payments from the Buyer as a bank would.

The problem with this approach has been that Sellers sometimes don’t want to collect small monthly payments, but instead want to cash out shortly after closing to buy another property, or for many other reasons. The benefits of owner financing are many, but sometimes these are not enough to help close a deal.

Basically, this is how an owner-Financed real estate mortgage note works:

1. The Seller sets the sale price to exactly the appraised value and advertises “Owner Will Finance… No Bank Qualifying!”
Interested Buyers go through a pre-qualification process to determine the best prospect.
2. The Seller and Buyer agree on the structure and terms of the note to be created (note buyer may provide some suggestions) and sign a Real Estate Purchase Contract.
3. At closing the Seller creates a 1st mortgage and soon after sells/assigns the mortgage note to the note buyer.
4. The Seller receives the Buyer’s down payment plus the proceeds from the sale of the note. In a Seller-Financed note purchase the note buyer normally covers all closing costs and the cost for his own property evaluation.


Let’s say the Seller owns a property that has been appraised at $100,000, but because it’s not a conforming lot, he is having problems getting qualified buyers. Buyers don’t seem to commit to the purchase and the ones that do, don’t get their mortgage approved by the Bank.

The Seller has the house advertised at $90,000, expecting to get $80,000-$85,000 after incentives and costs have been paid out. But not even this price is attracting real buyers.

This is where a note buyer can step in. The Seller would be advised to create a $90,000 note, the rest ($10,000) would be the down payment. The interest may be 8%, term 360 months, paying $660.39 monthly (Principal + Interest).

The note buyer would buy this note for approximately $80,000 cash shortly after the real estate closing. To this add the down payment, and the seller gets $91,000 total (minus closing costs for the real estate transaction).

Shortly after the real estate closing and after the new note is recorded, the note buyer makes the purchase of the note and the Seller gets his money. A perfect example of how an Owner-Financed mortgage makes a real estate sale possible. And there are no hidden fees or costs other than the regular real estate closing costs that have to be paid anyway. The Note buyer generally covers all closing costs for the note purchase.

This approach attracts a good number of buyers and in a few days, the Seller can have his cash in hand.

By Lela

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