Seller Financing Contract: What the Agreement Includes

A seller financing contract is the set of documents that lets a buyer pay the seller over time instead of getting a bank loan. It is usually not one document but three: a purchase agreement with a financing addendum, a promissory note that states the debt and payment terms, and a security instrument (a mortgage or deed of trust) recorded against the property. Together they define the price, the payments and what happens if the buyer stops paying.

This guide walks through each document and the terms to negotiate. It is general education, not legal advice. Seller financing touches federal and state lending rules, so have a real estate attorney draft or review your documents.

The three documents

Document	What it does
Purchase agreement with seller financing addendum	Sets the price, down payment, financed amount and the main loan terms the parties will sign at closing
Promissory note	The buyer’s written promise to repay: amount, rate, payment schedule, late fees, balloon and default terms
Mortgage or deed of trust	Secures the note with the property and is recorded in county records, giving the seller the right to foreclose on default

Which security instrument is used depends on the state. See deed of trust vs. mortgage. Some sellers use a contract for deed instead, where the seller keeps title until the buyer finishes paying. That structure carries different risks and is heavily regulated in some states.

Key terms in a seller financing agreement

Purchase price and down payment. Sellers often accept a higher price in exchange for flexible terms.
Interest rate. Negotiated between the parties, within state usury limits.
Amortization and term. Payments are often calculated over 20 to 30 years with the balance due sooner.
Balloon payment. The date the remaining balance is due. See how balloon payments work.
Payment details. Due date, grace period, late fee and where payments are sent. Many parties use a third-party loan servicer.
Taxes and insurance. Who pays them and how the seller is protected as a lienholder on the insurance policy.
Prepayment. Whether the buyer can pay off early without penalty.
Due-on-sale. Whether the buyer can sell or transfer the property without paying off the note.
Default and remedies. Notice, cure period and foreclosure rights.

Run your numbers with our free seller financing calculator to see the payment, interest and balloon balance before you negotiate.

Sample outline of a seller financing addendum

Parties and property
Purchase price, down payment and amount financed
Interest rate, amortization period and monthly payment
Maturity or balloon date
Late charges and grace period
Taxes, insurance and maintenance responsibilities
Prepayment and transfer terms
Statement that a note and recorded mortgage or deed of trust will be signed at closing
Closing agent and loan servicer

This outline shows what to expect. It is not a template to sign. State forms and requirements differ.

Legal points both sides should know

Existing mortgages. If the seller still has a loan, selling with financing can trigger its due-on-sale clause. Structures such as a wrap-around mortgage or buying subject to the existing loan carry that risk.
Consumer lending rules. When the buyer will live in the home, federal rules such as the Dodd-Frank Act and the SAFE Act can limit loan terms and who may originate the loan, with exemptions that depend on how many properties the seller finances. Get advice before you offer financing to an owner-occupant.
Close through title. Use a title company or attorney, record the security instrument and get title insurance.

For the bigger picture, including pros and cons for buyers and sellers, read our guide to seller financing and the creative financing overview.

Frequently asked questions

What is a seller financing agreement?

It is the agreement under which the seller lets the buyer pay over time. It normally consists of a purchase agreement with financing terms, a promissory note and a recorded mortgage or deed of trust.

Who holds the deed in seller financing?

With a note and mortgage or deed of trust, the buyer receives the deed at closing and the seller holds a lien. With a contract for deed, the seller keeps title until the contract is paid.

Can I write a seller financing contract myself?

You can negotiate the terms yourself, but the documents should be drafted or reviewed by a real estate attorney because lending laws and recording requirements vary by state.

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