What does seller financing entail?

Seller financing is a situation where the seller provides financing to the buyer instead of relying on a traditional lender. In this arrangement, the buyer usually makes a down payment directly to the seller, and the seller then extends credit to the buyer for the remainder of the purchase price. The buyer agrees to pay back the seller over time, typically through monthly payments which may include principal and interest.

This method can benefit both parties: the buyer might find it easier to qualify for financing since the seller is often more flexible than banks, while the seller can potentially close the sale more quickly and avoid some traditional costs associated with the process. Seller financing is also advantageous in situations where traditional financing may be difficult to secure due to credit issues or unique property conditions.

In contrast, the other options do not accurately describe seller financing. Financing exclusively through bank lenders fails to capture the essence of seller financing as it completely removes the seller's role. A type of mortgage requiring a higher down payment does not specifically relate to seller financing; rather, it refers to certain lending products offered by banks. Finally, a loan usually provided by the government pertains to specific government-backed loans rather than a transaction where the seller acts as the lender.