Seller Financing Addendum Template

seller financing addendum

In real estate, there are a number of different avenues for buyers to finance their purchases. One such option is that of seller financing. Seller Financing allows the seller(s) to loan an amount to the buyer(s) equivalent to the value of the property. In return, the buyer(s) agree to pay off the amount over-time, with installments at an agreed-upon interval. Generally, these types of transactions include a down payment, and then, payments at regular intervals to the seller(s). The buyer(s) and the seller(s) may also agree upon a large payment at the closing of the term.

In some cases, the seller may also enlist a bank to finance the property purchase on behalf of the buyer(s). In these cases, a complementary clause, known as the 3rd party financing addendum, will be required as well. Ultimately, there are a number of parties that will need to be involved in order to close such a deal. An example scenario is when the seller(s) offer a property deed and enlist the help of a bank in order to provide financing. The buyer(s) typically put down a down payment and sign a promissory note, binding them to pay the remaining amount, either in intervals or as a large payment at the closing of the term. Additionally, an agent will also be required, as they will do much of the verification with regards to the documents, deeds, and the property itself. In the case of a seller financing addendum, the 3rd parties, i.e., the bank and the agent, are left out, and the seller offers to handle all of the financings. This is the most common practice with established real estate agents.

The Benefits of Adding a Seller Financing Addendum

For buyers, seller financing offers the following benefits;

  • Typically, seller financing checks are less financing, and you won’t need a long history of credit, as you would if you were to go to a bank. Additionally, you may also be able to negotiate terms and conditions.
  • Sellers may also be able to offer lower interest rates when compared to banks, as well as smaller down payments. As we mentioned earlier, seller financing gives you more wiggle room in terms of negotiation and will let you negotiate a lot of particulars, unlike banks or money lenders.
  • With seller financing, collateral may not be required, as the property in and of itself will serve as collateral. With banks, you may need to put down personal assets.
  • Generally, dealing with seller financing is a lot quicker than going through the process of financing via banks. This lets you avoid a ton of paperwork and legal formalities, making things much quicker.

For sellers, seller financing offers the following benefits;

  • For the seller(s), they will be financing a property that they are very familiar with. This presents very little risk and is a well-known investment, as opposed to venturing out and investing in something that they are unfamiliar with.
  • Depending on the agreement, the seller(s) will be entitled to a regular stream of income while avoiding all the obligations that come with the management of the property.
  • The seller(s) have a ton of flexibility, just as the buyers do. They are free to negotiate their own terms and so can potentially enjoy better interest rates, higher down payments, etc., allowing them to plan better depending on their situation.

For these reasons, seller financing might be appealing to a potential buyer(s). Keep reading to find out how to draft a seller financing addendum!

Free Template

Seller Financing Addendum Agreement

How to Write

A seller financing addendum, when being added to the original purchase agreement, needs to account for a number of things. First, be sure to clearly define the parties subject to the agreement in the opening section. Each section should be numbered using roman numerals. Once the names have been listed, add the date of the original purchase agreement and the address of the property involved, clearly marking the city and the state in which it is located.

The second and third sections deal with the specifics and particulars of seller financing and are particularly important. Here, explain in detail the manner in which the buyer(s) plan to finance the property. Additionally, all the pertinent financials should also be entered here. This includes the price of mortgage (if applicable), the down payment, monthly payments (if applicable), and a rate of interest (if applicable.) If the deal involves multiple payments, be sure to define them clearly, with the amount of time allowed explicitly highlighted.

Typically, the fourth section has to do with credit information and seller approval. In this section, the seller is required to define the information needed to approve seller financing. Generally, this includes credit history and scores. Following this section, an approval notice clause must be added. This requires the seller to notify the buyer(s) when their request for seller financing has either been approved or rejected.

The fifth section deals with the manner of financing. Here, the seller is required to list a number of financing methods, including bank loans, mortgages, personal financing, adjustable rates, or a “balloon” payment, which refers to a large payment that closes the deal and the terms of interest. A checkbox should be added, so that the parties may choose the exact method of financing they decide to stick with. Finally, both parties may choose to add an escrow clause if needed. This is particularly common with large transactions, and so is left to the discretion of both parties.

Seller(s), in the case of regular payments, may also add a late payment clause that places penalties on the buyer(s) in case of delayed payments.

To finalize the addendum, add spaces for all parties to formally declare their names, signatures, and the date of signing. This completes all of the required sections of a seller financing addendum and can be added to the purchase agreement.

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