Owner financing is a popular option for borrowers because it can make it easier to finance the purchase of a home. Sellers might opt for owner financing to expedite the closing process and collect interest rather than taking a lump sum payment.

What Is Owner Financing?

Owner financing—also known as seller financing—lets buyers pay for a new home without relying on a traditional mortgage. Instead, the homeowner (seller) finances the purchase, often at an interest rate at par with current mortgage rates and with a balloon payment due after at least five years.

This can simplify the process of buying and selling a home by eliminating the need for a lender, appraisal and inspection.

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How Owner Financing Works

Just like a conventional mortgage, owner financing involves making a down payment on property and paying off the rest over time. That said, this alternative to traditional financing is typically more expensive and requires repayment or refinancing into a traditional loan in as little as five years.

Still, seller financing is usually faster and easier to get than a government-backed mortgage—if the seller is willing and able to provide it.