Free Seller Financing Addendum Templates (Word – PDF)

The Seller Financing Addendum outlines the terms of the seller financing agreement as acknowledged by both parties. Seen as a non-conventional means of property sale, seller financing can be considered taboo or risky practice. Nevertheless, this method can be executed successfully with mutual benefit to the involved parties.

Most commonly, these are short-term loans with the due dates of balloon payments generally falling around the five-year mark. These loans make them ideal for property flippers and investors with many stakes in the market. This method allows them to purchase many properties, potentially remodel and make repairs, and then resell them for a profit before the final payment arrives.

Seller Financing can be known as owner financing, a purchase-money mortgage, or a seller carryback mortgage. It involves the buyer of a property signing a mortgage directly with the seller.

They are thus foregoing the need for the involvement of a traditional lender or financial institution. This can only occur if the seller is the full owner of the property without an outstanding mortgage lien.

Starting Point for Sellers

Seller financing requires the seller to be:

  1. The full property owner making no more payments to a third party on the property and,
  2. In a good standing financial position without the need for the full cost of the property all at once.

Therefore, the seller needs to understand their position in the transaction as well as in the economy as a whole before electing to provide a mortgage independently.

The seller should also understand the advantages and disadvantages of this option and all the intricacies of the document. They should ensure that the buyer signs a promissory note for repayment. It is most likely that both parties will seek legal assistance to ensure the contract covers all the vital components of the sale and mortgage process. However, the title or escrow company can also draft the seller financing addendum.

How does the Seller Financing Addendum Works

The seller financing addendum serves as a follow-up to the contract of sale, overriding any previously listed clauses that contradict the revisions. The seller assumes the role of the lender and serves as a line of credit for the purchaser. The seller financing addendum not only protects the seller legally for repayment of the mortgage but clarifies all the upcoming steps in the process.

Essential Components of Agreement

It is important to seek professional help when working with these types of documents. Being aware of the components involved will ensure there are no gaps left behind, as flaws in the documentation of seller financing addendum could lead to future consequences. A promissory note from the buyer is also necessary to legally guarantee repayment. Finally, the property itself serves as collateral since a lack of repayment by the buyer could lead to an eviction.

The seller financing addendum should indicate:

Down payment amount

Most down payments for owner-financed properties will be between 10-20%, but there is no minimum requirement.

Time for the total repayment

These loans tend to be on the shorter end, commonly around 5-10 years.

Any balloon payment

A balloon payment is the final lump sum payment after the loan period.

Monthly installment amount

This depends on the length of the loan, interest rate, and whether or not a balloon payment is in place.

Due dates for payments

It is most likely that payments will be required monthly.

Late penalties for missed or delayed payments

This may be a percentage of the monthly payment or a flat fee. It must also be stated how long it takes for a payment to be considered late.

Interest rate

This is commonly around 4%-10%. Each state has usury laws that limit how high an interest rate can be.

Prepayment provisions

When the buyer pays off all of their loans ahead of schedule, the seller may choose to charge them a prepayment penalty fee.

Provisions for state taxes, insurance, and maintenance.

These provisions explain which of these costs the buyer will be responsible for.

There may be other necessary inclusions in the seller financing addendum depending on the unique sale and the needs of both parties. It is essential to understand the process from the signing of the contract until the final payment. Account for any potential difficulties that may need mentioning within the addendum.

The form concludes with spaces for both parties to print and sign their names, executing the seller financing addendum.

Advantages and Disadvantages

The original property owner, as they are receiving both the initial cost of the property and the interest payment, will obtain more money at the end of the repayment. With a greater pool of potential buyers, the property may be sold more rapidly. They may also be a more sought-after seller, increasing their odds of receiving their asking price for their property. It is also possible for a lender to be disinterested in financially supporting the property if they do not believe in the value. The property can be sold in its current condition, even if it is not in an ideal state for sale. Seller financing makes it so the property owner can still sell these types of properties.

Alternatively, a delay of the lump sum can hold the seller back from making other investments or buying other properties, as they must wait for the buyer to pay in full over the course of months or years, depending on the contract. There are also fewer safeguards for the seller in seller financing addendum, as they do not generally have the type of sophisticated legal backing larger lenders have in order to ensure repayments from buyers. It can be a costly endeavor to involve legal support if the buyer ceases payments and breaks the terms of the contract.

Free Templates

Following are some free downloadable templates for you:

Owner (Seller) Financing Addendum

Seller Financing Addendum to Purchase Agreement

seller financing addendum example

    Frequently Asked Questions

    What is Third Party Financing Addendum?

    This is the standard type of mortgage financing. Third-party financing comes from a bank or financial institution or any other source outside of the seller and the buyer. This form indicates the financing approval process, as the buyer would need to be approved by the lender to be given the loan.

    What are the closing costs in the Seller Financing Addendum?

    Closing costs depend on the buyer and the terms of the addendum. Without bank fees and traditional mortgage costs, seller financing allows for much lower closing costs. The closing cost will not need to include an application fee, credit report fee, or other fees related exclusively to a large financial institution. All costs will be dependent on the needs of the seller, who can calculate their closing costs to the buyer and negotiate accordingly.

    How are late payments dealt with in the Seller Financing Addendum?

    The response to late payment should be stated in the addendum. A time limit should be stated, indicating at what point a payment is considered overdue. The late fee charge can be either a percent of the installment cost or a flat fee. This is up to the discretion of the seller.

    Scroll to Top