A promissory instrument provided by the seller of a property to the buyer, functioning as a form of financing, is called a seller-financed mortgage. This arrangement allows the seller to act as the bank, receiving payments from the buyer over an agreed-upon timeframe. For example, if a buyer cannot secure traditional financing, the seller might offer this type of financing to facilitate the property’s sale.
This financing mechanism can benefit both parties. The seller may realize a higher sale price due to the availability of financing options and can also benefit from receiving interest income on the loan. For the buyer, this can be an avenue to purchase property when conventional lending is inaccessible. Historically, these have been used when credit markets tighten or when a property doesn’t qualify for standard mortgages.