Financing
Seller Financing Calculator
Work out the seller note, monthly payment, and the balloon balance on an owner-financed deal.
What each side sees
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Numbers only. A seller-financed deal needs a promissory note and a mortgage or deed of trust drafted by an attorney in your state. This is not legal or tax advice.
How this works
Seller financing, also called owner financing, is a deal where the seller acts as the bank. Instead of the buyer getting a mortgage, the seller hands over the deed and takes back a promissory note secured by the property. The buyer pays a down payment at closing, then makes monthly payments to the seller until the note is paid off or a balloon comes due. The note is simply the sale price minus the down payment, and the monthly payment is worked out with the same amortization formula a bank uses. The variables the two sides negotiate are the down payment, the interest rate, the amortization period, and whether there is a balloon. Rates on seller-financed notes usually sit above prevailing mortgage rates, often by one to three points, because the seller is taking on the credit risk and giving up a lump sum today. The balloon is the part most people underestimate. A common structure amortizes the payment over 30 years but requires the whole remaining balance in five years. That keeps payments low while the buyer improves the property or repairs their credit, but it also means a large balance falls due on a fixed date, and the buyer needs a refinance or a sale ready by then. On a 30 year schedule, only a small slice of principal is repaid in the first five years, so the balloon is nearly as large as the original note. For sellers, the appeal is a higher effective yield, a faster close, and the option to spread the capital gain over years using instalment sale treatment. For buyers, it is access to a property without bank underwriting. The risks on both sides are real. If the seller still has a mortgage, the due-on-sale clause in that loan may let the lender call the balance when the property transfers, and financing an owner-occupied home can bring the buyer under federal lending rules that require a licensed originator. This calculator handles the numbers only. Use an attorney who does these deals in your state to draft the note and the security instrument.
Comparing this against a conventional route? Try the DSCR Loan Calculator, or see the effect on the whole deal in the Rental Property Calculator.
Worked example
A seller agrees to a price of $400,000 with $40,000 down, at 8% interest, amortized over 30 years, with a 5 year balloon.
The seller note is $400,000 minus $40,000, so $360,000. Amortized over 360 months at 8%, the payment to the seller is about $2,641.55 a month.
Over the first five years the buyer pays about $158,493 in total, but only around $17,749 of that touches the principal. The rest, roughly $140,745, is interest. So when the balloon hits at month 60, the balance still due is about $342,251.
Counting the down payment, the monthly payments and the balloon, the seller receives about $540,745 in total on a $400,000 sale. That is the trade for waiting. The buyer, meanwhile, needs a refinance or a sale lined up well before that five year mark.
Frequently asked questions
What interest rate is normal on seller financing?
Seller-financed notes usually carry a rate one to three points above prevailing mortgage rates, because the seller takes the credit risk and gives up a lump sum today. The rate is fully negotiable, but very low rates can attract IRS imputed interest rules, so check the applicable federal rate before agreeing to a below-market number.
What is a balloon payment in a seller-financed deal?
The payment is calculated on a long amortization, often 30 years, but the entire remaining balance falls due on a much earlier date, commonly three to seven years in. It keeps monthly payments affordable while forcing a refinance or sale by a set deadline. Because early payments are mostly interest, the balloon is usually close to the original note amount.
Can I offer seller financing if I still have a mortgage?
Sometimes, but carefully. Almost every mortgage contains a due-on-sale clause that lets the lender demand full repayment when the property transfers. Wrap-around structures exist and are used, but they leave the seller exposed if the lender calls the loan. Speak to a real estate attorney before structuring one.
How does the seller get paid if the buyer defaults?
The note is secured by the property through a mortgage or deed of trust, so the seller can foreclose in the same way a bank would. Timelines and costs vary a lot by state. A larger down payment is the main protection, because it gives the buyer real equity to lose.
Is seller financing better than a bank loan?
It is different rather than better. Seller financing closes faster, skips bank underwriting, and lets both sides set the terms, which suits properties or borrowers a lender would reject. The costs are a higher rate, usually a balloon deadline, and more legal work up front. Run both scenarios on the numbers before deciding.
More Financing tools
- Mortgage Recast Calculator See your new payment and the interest you save after a lump-sum principal payment.
- DSCR Loan Calculator Check debt service coverage ratio and find the max loan a lender will approve.
- Cash-Out Refinance Calculator See how much equity you can pull from your property and what your new payment will be.