Seller Financing Calculator
Calculate monthly payments and full amortization for an owner-financed home purchase, including balloon payment scenarios.
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How It Works
Seller financing (also called owner financing or a seller carryback) is when the property seller acts as the lender. Instead of the buyer getting a bank mortgage, the buyer makes payments directly to the seller. This can benefit buyers who cannot qualify for traditional financing and sellers who want to earn interest income or sell faster. Most seller-financed deals include a balloon payment requiring the buyer to refinance within 3-7 years.
The Formula
Variables
- M — Monthly payment based on the amortization period
- P — Loan amount (purchase price minus down payment)
- r — Monthly interest rate (negotiated annual rate / 12)
- n — Amortization period in months (determines payment size)
- b — Balloon period in months (when remaining balance is due)
Worked Example
For a $350,000 home with $52,500 down (15%), the seller finances $297,500 at 7.0% amortized over 30 years with a 5-year balloon. Monthly payment: $1,979. After 5 years of payments, the remaining balance (balloon) is approximately $278,000 that the buyer must pay or refinance.
Practical Tips
- Always use a real estate attorney to draft seller financing agreements — the legal structure matters for both parties.
- Buyers should plan their exit strategy for the balloon payment well in advance — refinancing takes time.
- The Dodd-Frank Act restricts seller financing terms for sellers who are not owner-occupants or who finance more than 3 properties per year.
- Sellers should verify the buyer's ability to pay and require adequate hazard insurance on the property.
- Negotiate the rate carefully: it should be fair to both parties, typically near or slightly above conventional mortgage rates.
Frequently Asked Questions
What is seller financing?
Seller financing is a real estate arrangement where the property seller provides the loan instead of a bank. The buyer makes a down payment and monthly payments to the seller, who holds a promissory note and mortgage or deed of trust on the property. The seller receives interest income, and the buyer can purchase without qualifying for a bank loan.
What is a balloon payment?
A balloon payment is a large lump-sum payment due at the end of a shorter loan period. For example, payments may be calculated on a 30-year amortization, but the entire remaining balance comes due after 5 years. The buyer typically refinances with a conventional lender to pay the balloon.
Is seller financing risky?
Both parties face risks. Buyers risk losing the property if they cannot make the balloon payment. Sellers risk the buyer defaulting and the time/cost of foreclosure. Proper legal documentation, title insurance, and escrow services significantly reduce these risks for both sides.
What are typical seller financing terms?
Common terms include 10-20% down payment, interest rates near or slightly above market rates, 30-year amortization for lower monthly payments, and a balloon payment due in 3-7 years. Terms are negotiable between buyer and seller.
Does seller financing require a title search?
Yes. Buyers should always require a title search and purchase title insurance, just as with a bank-financed purchase. This ensures the seller has clear title to convey and protects the buyer's investment.