Seller Financing Calculator
Calculate seller financing (owner financing) terms for real estate transactions. Analyze monthly payments, interest income, tax implications, and compare buyer vs seller perspectives.
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Buyer Analysis
Understanding Seller Financing
Seller financing (also called owner financing or purchase-money mortgage) is when the property seller acts as the bank, providing a loan directly to the buyer. This creative financing method can benefit both parties in the right circumstances.
Common Seller Financing Structures
- Full Purchase-Money Mortgage: Seller finances the entire purchase price minus down payment
- Second Mortgage: Seller provides secondary financing behind a bank loan
- Wraparound Mortgage: New loan "wraps" existing mortgage (requires lender approval)
- Land Contract: Buyer gets possession but seller retains title until paid
- Lease-Purchase: Combines lease with option to purchase
Key Terms to Negotiate
- Interest Rate: Often 1-3% above bank rates but negotiable
- Down Payment: Typically 10-30%, protects seller's investment
- Term Length: Usually 3-10 years with balloon or 15-30 years fully amortized
- Balloon Payment: Large final payment if not fully amortized
- Prepayment Terms: Right to pay off early without penalty
- Default Provisions: Grace periods, cure rights, foreclosure process
Tax Implications
For Sellers
- Installment sale treatment spreads capital gains
- Interest income taxed as ordinary income
- Depreciation recapture in year of sale
- Can defer gains with proper structuring
For Buyers
- Mortgage interest generally deductible
- Property taxes deductible if itemizing
- Depreciation if investment property
- Same tax benefits as bank financing
Legal Considerations
- Use real estate attorney to draft promissory note and deed of trust/mortgage
- Record documents properly to protect both parties
- Consider title insurance and property insurance requirements
- Address existing mortgage due-on-sale clauses if applicable
- Include clear default and remedy provisions
- Consider using a loan servicing company for payment processing
When Seller Financing Makes Sense
- Buyer has good income but credit issues
- Property is unique or hard to finance conventionally
- Seller wants higher price or passive income
- Fast closing needed
- Market conditions favor creative financing
- Estate planning or tax benefits for seller