An owner financed real estate transaction enables the buyer of the property to make payments directly to the seller. This allows the buyer to purchase the real estate without having to apply for a mortgage from a financial institution. Usually, this also means lower loan origination costs for the buyer.

The advantages of an owner financed real estate transaction for the seller are a quicker sale and often a higher price. The disadvantages of an owner financed deal are that the seller receives only a small or even no down payment and takes the risk that the buyer will not pay. Nevertheless, the mortgage note that the seller receives can be a good investment if the interest rate is high enough.

A Way for People with Poor Credit to Purchase Property
For buyers who have no credit history or who have poor credit ratings, an owner financed deal may be the only way they can purchase property. An owner financed deal can be a good way for them to build equity and improve their credit ratings. Buyers who have good credit ratings should compare rates offered by the banks before entering into an owner financed real estate transaction.

In order for sellers to offer owner financed real estate deals, they must be the free and clear owners of their properties. If they need to raise cash after the sale, they can always sell the mortgage to a third party for the present value of the future stream of payments. This is known as discounting the mortgage.