How seller financing fits into a purchase
Consider a hypothetical $600,000 purchase funded by a $390,000 mortgage from another lender, a $90,000 seller loan and $120,000 from the buyer. These amounts cover the price; closing costs are additional. The buyer takes on $480,000 of mortgage debt under two agreements.
The seller loan replaces $90,000 that would otherwise need to come from another source at closing. This example shows the funding split, not approved lending percentages or an available mortgage arrangement.
Agree the terms and review the other lender's requirements
The buyer needs to understand the interest, payments, loan period and amount due when the seller's loan ends. The seller takes on a lender's risks and responsibilities. Both should obtain appropriate professional advice about the purchase and mortgage documents.
If another lender is involved, it must permit the proposed seller financing. The seller's agreement is not enough; the other lender's instructions and transaction documents need review.
Plan how the seller's loan will be repaid
If the example's $90,000 seller loan requires interest-only payments, the full principal remains due at the end of its term. A future refinance or sale intended to provide that money needs examination before relying on it.
Your lawyer should review the documents and obligations, while any intended tax result requires tax advice. Our private-borrowing guide explains further cost and repayment questions.
Review all the purchase financing together
Tell Streetwise if seller financing is proposed. The assessment needs to include your funds, both mortgages, their payments and the repayment plan. It should also examine what happens if a later refinance or sale produces less money than expected or takes longer.
Read about investor financing or contact Streetwise about the purchase.
