What this calculator does
In seller financing, the seller acts as the lender: the buyer pays part of the price up front and pays the rest in monthly installments to the seller. Many notes are amortized over a long term but come due sooner, with a balloon payment of the remaining balance. This calculator shows both sides of the deal.
How it's calculated
Amount financed L = price − down payment
Payment = L × i ÷ (1 − (1 + i)−n), i = rate ÷ 12, n = years × 12
Balloon = balance left after the balloon year's last payment
Seller's interest = sum of the interest part of each payment
Payment = L × i ÷ (1 − (1 + i)−n), i = rate ÷ 12, n = years × 12
Balloon = balance left after the balloon year's last payment
Seller's interest = sum of the interest part of each payment
The schedule is worked in whole cents, month by month, as a servicer would.
Worked example
A $300,000 sale with 10% down leaves a $270,000 note at 7%, amortized over 30 years. The payment is $1,796.32. If the note comes due after 5 years, the buyer owes a balloon of $254,155.09, and the seller has earned $91,934.29 of interest. Left to run the full 30 years, the seller would earn $376,671.49.
Balloon by year ($270,000 at 7%, 30-year amortization)
| Balloon after | Balance due |
|---|---|
| 3 years | $261,163 |
| 5 years | $254,155 |
| 7 years | $246,098 |
| 10 years | $231,693 |
Rules worth knowing
- Federal lending rules can apply to sellers. Under Regulation Z § 1026.36, a seller financing three or fewer properties in any 12 months is excluded from the loan originator rules only if, among other things, the loan is fully amortizing, has a fixed rate or one that adjusts only after five or more years, and the seller determines in good faith that the buyer can repay. A person, estate or trust financing just one property in 12 months has a looser test, but the loan still can't negatively amortize. A balloon note may not meet the three-property test.
- Taxes. Payments received after the year of sale make it an installment sale. The IRS says the interest you receive is ordinary income, and a note with little or no interest can have "unstated interest" (IRS Publication 537).
- Land contracts. A land contract (contract for deed) is a related setup in which, as the CFPB explains, the seller keeps the deed until the contract is paid off. The payment math is the same.
Limitations
- Property tax, insurance, late fees and servicing costs aren't included.
- State laws on owner financing, land contracts and foreclosure vary. Use a real estate attorney to draft the note.