As an alternative to a conventional lending institution, a buyer may find a seller who is willing to finance the transaction. Under these arrangements, a seller receives a promissory note from the buyer and uses a mortgage, deed of trust, or similar instrument to secure payment and guarantee performance.

Other financing options, such as the use of a land sales contract, assumption of the seller's mortgage, graduated payment plans, and adjustable-rate loans may also be worth investigation.

Specific terms and requirements for loans vary widely and are influenced by money market conditions, the quality of the borrower's credit, income sources or assets, and other factors. Loan costs can also vary, and may include service charges, appraisal fees, survey costs, title insurance, escrow and legal fees. If financing is required to complete a transaction, a buyer should be sure the purchase and sale agreement specifies that requirement as a condition of the purchase. Furthermore, the buyer usually has the responsibility for finding a financing commitment by a certain date.

The agreements used to secure a debt with real property are usually lengthy and complex. Such agreements affect the payment of money to a seller, a lender, or both, and establish a security interest in your real property or home. Even with a "standardized" form, legal advice may be necessary to fully understand the details, obligations and legal consequences of the documents. It may also be necessary for your lawyer to tailor certain items to meet your requirements.

Use of Security Instruments

Several methods and various security instruments may be used for real-estate loans, each with different obligations and consequences.

A mortgage and a deed of trust are security instruments that pledge to the lender an interest in your real estate to secure payment of a promissory note. A mortgage is the instrument, usually held by the lender, by which the property is pledged to secure the payment of a debt or obligation. A deed of trust has similar functions, but is usually held "in trust" by a trustee. The promissory note acknowledges a borrower's formal obligation to repay the loan. Under some types of security instruments, a buyer who fails to pay on time can lose the pledged property or may be required to pay additional amounts on the loan.

A real estate installment sales contract or a land sales contract is an agreement between the seller and buyer that states the purchase price and method of payment, as well as other rights and duties.

The buyer usually does not receive a deed (or legal title) to the property until all required payments are made. In the event of default, payments may be forfeited, and the buyer`s interest in the property may be lost.