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Creative Financing

Learn about some of the types of creative financing you can do!

Seller Financing

The seller acts as the bank, allowing the buyer to make payments directly to them instead of getting a traditional mortgage.

When's it a good fit?

  • You own the home free and clear, have high equity, or a low-interest loan

  • You are retiring from being a landlord but still want passive income

  • You are downsizing or an out of state owner, and want passive income

  • The house needs work, but you want to sell at a good price

Example:

A seller owns a $200,000 home free and clear. Instead of requiring all cash, they sell it for $210,000 with $10,000 down and carry a $200,000 note at 5% for 30 years, receiving passive income.

Seller Benefits:

  • Monthly passive income with interest

  • Tax mitigation by spreading capital gains over time (installment sale)

  • No property management

  • Potentially higher sale price by offering financing terms

  • Larger buyer's pool than a conventional sale (faster sale)

  • Lower closing costs

Seller Risks:

  • Property taxes must monitored, or else risk losing the property in tax deed auction

  • If you still have a mortgage, a due-on-sale clause could be triggered

  • If the buyer stops making payments, you will have to foreclose on them

  • Insurance must be monitored, or else a detrimental event could destroy the property

  • A poorly executed contract could result in many issues with payment enforcement or foreclosure processes

Agreement for Deed

The buyer makes installment payments, but the seller retains title until the full price is paid off or refinanced.

When's it a good fit?

  • You own the home free and clear, have high equity, or a low-interest loan

  • You are retiring from being a landlord but still want passive income

  • You are downsizing or an out of state owner, and want passive income

  • The house needs work, but you want to sell at a good price

  • You want to hold title and pay the property taxes

Example:

A seller owns a $200,000 home free and clear. Instead of requiring all cash, they sell it for $210,000 with $10,000 down and carry a $200,000 note at 5% for 30 years, receiving passive income.

Seller Benefits:

  • Retains legal title (extra protection)

  • Monthly passive income with interest

  • Tax mitigation by spreading capital gains over time (installment sale)

  • No property management

  • Potentially higher sale price by offering financing terms

  • Larger buyer's pool than a conventional sale (faster sale)

  • Lower closing costs

Seller Risks:

  • Property taxes must monitored, or else risk losing the property in tax deed auction

  • If you still have a mortgage, a due-on-sale clause could be triggered (low chance)

  • If the buyer stops making payments, you will have to foreclose or evict them (state dependent)

  • Insurance must be monitored, or else a detrimental event could destroy the property

  • A poorly executed contract could result in many issues with payment enforcement or foreclosure processes

Lease Option

Combines a lease agreement with an option to purchase, giving the tenant the right (but not obligation) to buy.

When's it a good fit?

  • You want to maximize the profits from the sale

  • You don't need a large down payment

  • You want minimal property management

Example:

A tenant pays $1,200/month rent with $200/month credited toward purchase. After 3 years, they have $7,200 in credits and can buy the $200,000 home for the agreed price, even if it's worth more.

Seller Benefits:

  • Monthly passive income with fewer landlord headaches

  • Defer capital gains taxes until the option is exercised

  • Collect an upfront option fee (non-refundable if buyer doesn’t purchase)

  • Retain ownership (claim depreciation on taxes) until the sale

  • Flexible exit strategy if buyer doesn’t follow through

  • Can evict tenant-buyer for non-payment

Seller Risks:

  • If you still have a mortgage, a due-on-sale clause could be triggered (very low chance)

  • A poorly executed contract could result in many issues with tenant/landlord responsibilities, payment enforcement, disagreement on repair responsibilities and maintenance, or foreclosure process instead of eviction

Subject-To

The buyer takes over the existing mortgage payments without formally assuming the loan, while the seller's name remains on the mortgage.

When's it a good fit?

  • Your house has low or negative equity, or you would be forced to short sell

  • You are unable to make payments, and are facing the risk of foreclosure

  • You need to sell quickly

Example:

A seller owes $150,000 at 3.5% interest but needs to sell quickly. The buyer takes over the $1,200/month payments and gives the seller $10,000 for their equity, taking immediate possession.

Seller Benefits:

  • Immediate relief from mortgage payments

  • No need to pay off mortgage at closing

  • Exit a burdensome property without foreclosure or short sale

  • Avoid damage to credit from missed payments

  • Large buyer's pool (if you have a low interest rate mortgage)

  • Lower closing costs

Seller Risks:

  • If you still have a mortgage, a due-on-sale clause could be triggered (likelihood varies depending on loan type and who holds the note)

  • If buyer stops making payments, even after the title is transferred, you as the seller are still legally responsible for the mortgage. Failure to make payments will result in foreclosure, and wreck the credit score you were trying to protect

When working with us...

We provide real estate solutions for both homeowners and investors, emphasizing flexible financing approaches. We understand the risks associated with creative financing, and we know the mitigation strategies to protect the sellers, the first-time home buyers, and our partners!