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Helping Brokers, Buyers and Sellers

How Does Creative Financing Work?

Today I got this email from Teresa, a real estate broker:


I have a buyer with a good down payment. They make good money, but they are self-employed, have less than perfect credit, and are having problems getting financing.

They have been looking to buy a home around the $300-400k range.  I would like to get you connected up with my buyer to see if they can use your creative financing techniques to make a purchase.

Let me know when you are available.

Sincerely, Teresa, Real Estate Broker


Dear Teresa,

I can probably help this buyer. I look forward to talking with you. It sounds like you have found the kind of buyer who can benefit from creative financing.

What is the advantage to a buyer to do seller-financing? The buyer can avoid the cost and trouble of getting bank financing.

What is the advantage to a seller to do seller-financing? The seller will have more potential buyers and can probably get a better price than if the seller insisted on the buyer getting a new loan.

As an agent, what you are looking for is a buyer who can pay at least 8.0% to 10.0% percent down. You need that much to cover closing costs and commissions and other costs. Commissions get paid at closing.

You are looking for a seller who has a property with equity in it. It should be obvious that seller financing is not going to work in a short sale situation. The seller should have at least 10.0% equity in the property.

If the seller has only 10.0% equity in the property, the seller’s equity will generally be cashed out. Then the buyer’s monthly payment will equal the seller’s mortgage payment.

If the seller has more than 10.0% equity in the property, either the buyer will make a larger down payment or the buyer will owe the seller his equity on a second note.

These seller-financed deals are all unique. They are structured in different ways. I believe I can put them together so that buyer and seller are secure and so the lender will not object to the transaction. I would describe exactly how I handle these deals, but the information is “proprietary”.

When I put these deals together I represent buyer or seller – not both. But I make sure that the party I am not representing gets legal counsel. As broker you need for this to happen for your protection. I generally represent the buyer, but I have also represented the seller. Bear in mind that seller-financing is not for everybody.

I just closed a deal like this in Pierce County. The buyer is a contractor who is going to live in the house and run his business out of it. He has bought and sold a lot of properties. Property values are down, and now is the time for those wanting a bargain price to be buying.

I believe that in many cases seller-financed transactions can be closed even when there is a due-on-sale clause in the seller’s mortgage. However, the buyer or seller needs to come see me for a consultation so I can disclose the pros and cons.

If you are a broker, don’t be shy about calling. I do not charge brokers for time on the phone.

I also handle mortgage modifications and bankruptcies, but it is structuring seller-financed deals that I find most interesting.

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  1. I need some advice. I have $35k in my owner financed home valued at $285k. The balloon note $199K was due October 5th. It’s now going into foreclosure. I need to secure a loan but I can’t qualify for any. What are my options…can you help?

    I have a business contract that is being close to closing that will pay me more than enough to cover the loan balance, but it’s taking longer than I had expected. I am hopeful that you can provide me with a realistic option.

    Rodney Schupp

    • Rodney,

      I am licensed only in Washington. For me to help you in Colorado, you would have to hire another attorney there to backstop me. Is there an attorney who has worked for you who would like to learn about this field of law? The lawyer you will need in Colorado would not have to be a real estate lawyer or even an experienced lawyer. The young ones can be excellent. Sometimes they will backstop me for free just to learn about the loan mediation or modification or wrap-around transactions, areas I am pretty good in.

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