With seller financing, there is no bank!

Technically, there isn’t even a loan. The seller never gives the buyer any money as a bank would. Instead, the seller agrees to let the buyer pay the purchase price over time in monthly installments. In exchange for this owner financing arrangement, the seller — not a bank — receives the promissory note and mortgage as security.

The beauty of this arrangement is that there are only two parties: the buyer and the seller. The seller doesn’t have loan committees, underwriters, or Fannie Mae–conforming rules. The buyer makes an offer to the seller, the two negotiate, and if it makes sense for both parties, they move forward.

But how common is seller financing, really? Ben Leybovich, a well-known creative financing writer here on BP, once wrote that seller financing is rare and usually only used on ugly pig properties. Indeed, seller financing isn’t as common or easy to obtain as traditional tools. It’s also true that seller financing doesn’t magically turn a bad deal into gold. But don’t let its difficulty dissuade from its ultimate value.

Seller financing is an incredible tool that’s well worth the effort. And it’s one of the clearest win-win transactions in real estate.

 A private lender (or investor) is an individual who uses their own capital for real estate investments. This could be anyone with the financial ability to meet your monetary needs. They’re a private person, not part of a bank or other financial institution, and will deal with you directly when negotiating the terms of the loan. 

Traditional mortgage lenders care mostly about your credit score when evaluating you as a prospect for a loan. That, plus the term of the loan and the amount borrowed, are some of the biggest factors in determining how much you will owe with a traditional mortgage. 

Hard money lenders care more about your real estate track record than your credit score. They want to be protected by having a first deed of trust—or the primary mortgage—on the property. That means their money is secured by a hard asset. If you don’t pay, the property serves as collateral.

Private money lenders are more relationship-based. They may even be a friend or family member. They often have different approval requirements and may not care about your credit score at all. They also will usually move at a faster pace than traditional 

 Hard money lending is another creative financing tool. Hard money loans, or asset-backed loans, are an alternative to traditional bank financing. And while the cost is generally higher than normal, the availability and speed of funds make them very helpful to many investors. You’ll definitely want to look at your numbers to make sure this funding source will be worthwhile, but a hard money loan can be much quicker to get. This means you won’t miss out on a deal while you wait for your funding to come through.