Instead of getting a bank loan, you negotiate terms directly with the seller. They carry a promissory note secured by the property. You make monthly payments to them — including principal and interest — for an agreed term. The seller holds a first or second mortgage as security. Upon a balloon payment or your sale of the property, the seller is paid in full.
Sellers who own properties free and clear are the primary candidates — they have no underlying mortgage to pay off at closing. Sellers motivated by installment sale tax advantages — spreading capital gains over multiple years rather than taking a lump sum — are actively interested in carrying notes. Sellers who trust you and want ongoing income from a reliable borrower sometimes prefer a note to a one-time payout.
Interest rates typically run 5–8% — above what the seller would earn in a savings account, below what you would pay for hard money. Down payments are negotiable — 5–20% is common. Terms range from 5-year balloons to 30-year fully amortizing notes. Negotiate every element — there is no standard structure in seller financing.
Use a real estate attorney to draft the promissory note and mortgage documents. Ensure the note includes: interest rate, payment schedule, balloon date if applicable, default provisions, and remedies. The seller needs title insurance and should record the mortgage. The buyer should get title insurance protecting their ownership interest. Do not use a handshake agreement on seller financing — the stakes are too high.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.