Estimate seller financing income amounts in a variety of different scenarios. Fine tune how much interest you want to earn and when you want to be repaid. If you like what you see, continue to learn more about seller financing. Share via: Payment options
Seller financing, also known as owner financing or owner carry loans, can be a great option for both buyers and sellers of real estate. With an owner carry loan, the seller provides financing to the buyer instead of the buyer obtaining a traditional mortgage from a bank. This allows the buyer to purchase the property with less money down and potentially better terms. The seller benefits by receiving a good return on their investment in the form of interest payments.
To determine if seller financing makes sense for a particular real estate transaction, it’s important to evaluate the deal from both the buyer’s and seller’s perspectives. This is where an owner carry loan calculator comes in handy.
How an Owner Carry Loan Calculator Works
An owner carry loan calculator allows you to input details of the proposed real estate transaction, including:
- Purchase price of the property
- Down payment amount
- Interest rate and loan terms offered by the seller
- Amortization schedule (e.g. 30 years)
Based on this information the calculator will provide key data to analyze the deal such as
- Monthly principal and interest payments for the buyer
- Total interest paid over the life of the loan
- Amount of equity built by the buyer over time
- Seller’s monthly cash flow from interest payments
As an example, let’s say a home is being sold for $500,000 with 20% down and the seller is offering a 30-year amortization at 5% interest. Here are some key data points from an owner carry loan calculator:
- Monthly Payment: $2,228
- Total Interest Paid: $318,757
- Total Payments: $818,757
- Seller’s Monthly Cash Flow: $1,114
Benefits for Buyers
From the buyer’s perspective seller financing offers several potential advantages compared to a traditional mortgage
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Lower down payment – The seller may allow a lower down payment, making the home more affordable. For example 10% down instead of 20%.
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No bank qualifying – The buyer avoids the strict income and credit requirements banks impose. The seller may be more flexible.
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Favorable terms – The interest rate and payment schedule can potentially be tailored to the buyer’s preferences, improving affordability.
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Faster closing – Without bank approval needed, the sale can close much quicker.
Using the owner carry loan calculator shows how a lower down payment reduces the monthly burden on the buyer and increases affordability. Of course the trade-off is paying more interest over the long run.
Benefits for Sellers
For the seller, owner financing offers these primary advantages:
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Higher sale price – Offering financing may allow the seller to get a higher price than demanding all cash.
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Stable monthly income – The interest portion of the monthly payment provides steady cash flow to the seller. From the example above, the seller receives $1,114 per month in interest income.
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Flexibility – The seller can set the terms of the deal including down payment, interest rate, and payment schedule.
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No bank approval – Avoiding traditional lenders means less hassle and fewer obstacles to closing.
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Payoff faster – Compared to a 30-year mortgage, the faster pay down of an owner carry loan builds the seller’s equity faster.
As you can see, inputting different down payment and interest rate scenarios into the owner carry loan calculator demonstrates the impact on both the buyer’s affordability and seller’s cash flow and payoff.
Key Factors to Consider
While owner financing offers benefits, there are also important factors to consider:
For the Buyer
- Total interest paid over the long run will likely be higher than a traditional mortgage
- The buyer takes on all risk if the seller defaults on any underlying mortgages
- There may not be any tax advantages unlike a traditional mortgage
For the Seller
- Receiving monthly payments relies on the buyer making consistent on-time payments
- The seller has to wait to receive full payment while holding a mortgage note
- Extra work is required to service and collect payments from the buyer
Using an owner carry loan calculator helps assess these key factors by showing the big picture cash flows and total interest for both parties.
Owner Financing Scenarios to Evaluate
When considering seller financing for a real estate transaction, it’s a good idea to evaluate multiple scenarios. The owner carry loan calculator makes it easy to quickly compare different options. Here are some examples to analyze:
Vary the Down Payment
- Start with 20% down payment and check monthly payments
- Evaluate 10% down and see impact on payment
- Consider 0% down and assess if still affordable
Change the Interest Rate
- Input current market rate as baseline
- Add 1-2% and see payment impact
- Reduce rate in 0.5% increments to improve affordability
Adjust the Amortization Period
- Model scenarios from 15 to 30 year periods
- Observe impact on monthly payment and overall interest cost
Test Different Purchase Prices
- Input listing price and run calculations
- Try lower offer prices to identify affordability limits
- Increase price to evaluate maximum purchase power
Running these kinds of variations will provide critical insights into the optimal owner financing terms for both buyer and seller.
Use an Owner Carry Calculator Early On
Exploring owner financing for a real estate purchase can get complicated quickly as you balance benefits and risks across buyer and seller. This is why using an owner carry loan calculator early on in the process is so important.
Here are some tips to use a loan calculator effectively:
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Model scenarios before even making an offer so you know what you can afford.
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Ask the seller for details on any existing mortgages that may affect calculations.
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Have the seller run numbers on their side to find mutually beneficial terms.
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Consult professionals to ensure tax and legal implications are properly handled.
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Adjust parameters as negotiations advance to refine the offer.
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Continue to evaluate after an accepted offer as you finalize details.
Having easy access to owner carry loan estimates through an online calculator will enable you to negotiate a fair deal for both parties and close the transaction smoothly.
Seller financing can unlock real estate opportunities that might otherwise be out of reach. But it requires careful evaluation from both perspectives. By using the owner carry loan calculator properly and involving professionals, you can move forward with confidence and avoid costly mistakes.
How To Use the Calculator
- Sale Price: Enter the value of your house, or the amount you would like to sell it for. This amount may represent what you would receive in a traditional sale, before paying agent commissions. Here’s a quick estimate.
- Down Payment: This is the amount you want to receive upfront. It can range from $0 to whatever portion of the sale price you need to make the deal worthwhile.
- Interest Rate: Enter the interest rate that you would like to charge for financing the remainder of the sale price (the portion not received as a down payment). The interest rate gives the sale its investment component, which would not be there in a traditional sale.
- Loan Term: This is the timeframe in which you want the loan to be repaid, and is referred to as the amortization period. Monthly payments during this period include a mix of principal and interest (unless you include an “Interest Only” period). The Loan Term is most commonly used to control the amount of the monthly payment, since there are other ways to control when the loan actually ends (e.g. with the “Balloon” option).
- Balloon: Selecting this option allows you to input when you want the loan paid off. The balloon cuts off amortization and makes everything due at the time of the balloon. Sellers use a balloon to control the length of time they want income, as well as when the rest of their principal is due.
- Interest Only: Selecting this option allows you to control the length of time for which you will receive interest only. During this period, there is no principal paydown, which means that the loan amount does not go down. This can be great as an income stream for the seller, while providing the buyer a period of increased affordability.
- Balloon and Interest Only: Selecting both options allows you to configure a scenario where you only receive interest for some time, and then a mix of principal and interest until the time of the balloon, at which point the remainder of the loan is paid off.
- Escalating Interest Rate: This is a way to encourage a loan to be paid off without actually requiring it (unlike a balloon). The buyer will be subject to higher and higher interest rates the longer they keep the loan, which is more flexible than a balloon payment. The seller’s income increases over time.
- Show Amortization Table: Turning this on will show the monthly breakdown of principal and interest as the loan amortizes. This option can be used with any of the others to also show monthly income and remaining balance in more complex scenarios.
- Seller Financed Loan Amount: The amount that you would be earning intertest on (sale price minus down payment).
- Monthly Income: An estimate of the amount of monthly income, including principal and interest, that you would receive. It is based on the seller financed loan amount, interest rate, and loan term. For advanced scenarios, you may turn “Show Amortization Table” on to see how monthly income changes over time.
- Monthly Income During Interest Only: An estimate of the amount of monthly income that you would receive during an “Interest Only” period. This income is the monthly interest due on the loan. Because there is no principal paydown, both the amount owed and the interest payment stay the same during an “Interest Only” period.
- Monthly Income After Interest Only: An estimate of the amount of monthly income that you would receive after the “Interest Only” period. This amount is higher than the income during the “Interest Only” period because the loan has started amortizing and payments now also include a principal component. Notably, the payments are also higher than if there were no “Interest Only” period, because the same loan amount is being paid off over a shorter period of time.
- Total Interest Income: An estimate of the total amount of interest you would receive over the life of the loan. This is the amount that is “extra” when you seller finance as compared to selling outright.
- Balloon Amount: The amount to be paid at the time of the balloon.
- Total Income from Seller Financing: An estimate of the total amount of principal and interest that you would receive due to seller financing. The principal is the seller financed loan amount, and the interest is the total interest income.
- Grand Total: This is the total amount received from selling the house, which includes the down payment together with the total income from seller financing.
Is Owner-Financing A Smart Way To Buy A House?
FAQ
What is the interest rate for seller carry?
What does it mean when an owner carries a loan?
Is seller financing a good idea?
What are the IRS rules on owner financing?
What is a seller financed home calculator?
Sellers who are financing the purchase of a home can use this calculator to help buyers figure out how much they will owe on the property at the end of the seller-financed period of the loan.
How does a personal loan calculator work?
The personal loan calculator lets you estimate your monthly payments based on how much you want to borrow, the interest rate, how much time you have to pay it back, your credit score and income.
How do I send a copy of my owner finance calculator?
Use the Email a Copy field to send yourself a copy of your owner finance calculator – that way you have a copy you can easily refer to and update as needed. Here are the key components of the seller financing calculator:
What is owner financing interest rate?
This is also commonly referred to as the owner financing interest rate which is the interest you would charge the buyer. The interest rates are expressed as an annual percentage. Under Seller Financed Loan Term enter the amortization period for the owner financing loan term in years.