Seller-Financed Mortgage (SFM), also known as Seller Financing or Owner Financing, or Purchase Money Mortgage or Wraparound Mortgage, is one of the ways UK Residents with verifiable income but disqualified by the rigid FCA-regulated traditional home mortgage can buy a house, and also not providing subprime mortgages. The property owner and lender are the same entity, eliminating the middle-man role of the bank lender (it's not the bank's business to sell property, albeit that's gradually changing in developments markets, post 2008 GFC).

SFM typically involves two main parties (lender / property vendor + property buyer) as against three parties (lender + property vendor + property buyer) that exist with a traditional mortgage. However, much of the structure associated with a traditional mortgage may still exist with an SFM. Seller-Financed mortgages remain rare options in today’s housing market because almost all property developers build with bank loan or from some other borrowed funds. DCANS Mortgage and/or any of its home providers do not build or lend with bank or borrowed funds - We underwrite this SFM with our own funds and not funds from the general public.

Note: We only underwrite owner-occupier residential mortgages as Seller-Financed Mortgage. Buy-to-Let mortgages and other commercial mortgages that do not require FCA regulation are financed just normally.

HOW IT WORKS

Just like a conventional mortgage, seller financing mortgage involves making a down payment on property and paying off the rest over time. Seller financing works similarly to any mortgage transaction with the exception that the seller (in this case DCANS Mortgage) is extending you the financing rather than another lender or bank. Unlike a traditional mortgage closing, the only money the seller receives at closing is whatever amount was negotiated for a down payment, if any.

When financed by an SFM, the consequences of default may be laid out in a promissory note or in a separate document. It is as DCANS Mortgage (also the seller or property owner at the time of signing the paperwork) lending the prospective homebuyer the money, but no money will actually change hands (move from the lender-property owner to the prospective homebuyer) - it will just be recorded on paper i.e. a loan document. This will represent the obligation on the prospective homebuyer to repay DCANS Mortgage. As with any other property lending, seller financing requires some form of background or credit check, which can still help otherwise unqualified borrowers achieve homeownership.

Title will remain in the name of DCANS Mortgage (DCANS Capital Limited) until the loan is fully paid off, and can take possession of the house if the prospective homebuyer defaults and does not find a solution via any of our available Repayment Assistance Programmes.

SFM should be considered carefully as they may not be for everybody. If you don’t have the money to make a balloon payment when it comes due, people with improved credit will refinance the cost into a traditional mortgage.

MORTGAGE REPAYMENT

Once a Buyer and DCANS Mortgage (Seller) agree to terms, monthly payments are made to the owner-seller (DCANS Mortgage) according to an agreed-upon amortisation schedule. Depending on that schedule, the borrower also may face a large lump-sum payment at the end of the loan term. Unlike traditional mortgages, however, tax and insurance payments generally are not rolled into monthly debt service, and the buyer must make them directly.

At the end of the loan term, the buyer either makes the balloon payment or obtains a mortgage refinance and pays off the sellers with the proceeds of a new loan. The buyer will get title to the property for the first time or DCANS Mortgage will execute a Satisfaction of Mortgage indicating the mortgage has been paid in full and releasing the lien on the property.

TRANSACTION STRUCTURES

The commonality here is that in many aspects, SFM functions like traditional home financing. All houses to be mortgaged are always owned free and clear by DCANS Mortgage and/or its in-house providers before mortgage paperwork are completed. We (the seller via the SFM structure) and buyer work out the terms of a down payment, final purchase price (when the loan will be paid off) and interest rate.

It’s important to note that all our mortgages contain a “due on sale clause.” This means that as soon as the property is sold on by the mortgage holder, we will demand payment.

It’s important to also note that, you don’t get the title right away. Rather, DCANS Mortgage (seller) holds the legal title to the property, which is given to you once the seller is fully paid off. While you don’t get the legal title immediately, you do gain equitable title. This means that with each payment you make to the seller (DCANS Mortgage), you gain financial equity in the property.

Contract for Deed (aka Installment Sale or Land Contract)

A contract for deed is when a buyer does not receive the deed to seller-financed property until the homebuyer makes the final loan payment. Alternatively, the buyer receives title if he refinances the loan with another lender and pays the seller (DCANS Mortgage) in full.

SFM BENEFITS

There are several ways to buy a house without a regulated home mortgage from a traditional bank in the UK and SFM is one of them. Seller financing is one of the most common ways and may even be the best way to buy an owner-occupier house in the UK without a mortgage from a regulated high-street lender.

• It allows prospective homebuyers who might not otherwise qualify for a bank mortgage the ability to get a mortgage. Those with damaged credit or a short credit history might not qualify for a traditional mortgage but qualify with us, subject to additional requirements. We don't provide subprime home mortgages via our SFM.

• Enables buyers to finance homes that don’t qualify for conventional financing (homes of unusual construction - e.g. thatched roofs), most post-World War II precast concrete buildings, timber frame house, Park homes, Static caravans, Lodges (typically of wooden construction but this can vary), etc.

• For those in the market for a new home but are having trouble winning loan preapproval.

• For those who are new in the UK and been here for less than three (3) years.

• The closing process may be quicker and cheaper.

• Reduces the cost of closing by eliminating appraisal costs, bank fees and - if the buyer so chooses - inspection costs

• Down payment amounts are negotiable with seller financing in a way that they usually aren’t when it comes to traditional mortgages.

• All our SFM agreements are in writing and overseen by qualified solicitors and binding in any UK court.

ONWARD LOAN BOOK SALES

As already stated above, all mortgage loans on our books may/will be sold to The DCANS Group Prospective Bank (DCANS Bank, registered in England & Wales  as DCANS Bnk Limited, DBL (DCANS Bank Limited Precursor) with company number 09012597 by 2025 (if not far earlier - team already on the ground). Custom-built Physical and Industry-beating Digital Infrastructure for DBL are almost complete (prop trading floors and/or workstations included), receives authorisation to be regulated as a bank, and before DBL interfaces with the general public.

DBL (not DCANS Mortgage Progenitor), whilst coming on board with dedicated operations in real estate and mortgage banking, will also have special interest in corporate, commercial, business, private banking, and proprietary trading (FICC), but definitely not standalone retail/consumer banking - The Group has never been interested in retail deposits and/or investments.

The co-existence of DCANS Mortgage and DBL, post the latter's future operations is deliberate. Note, that DCANS Mortgage can sell off the loan to any qualified prospective buyer and not necessarily DBL, without varying the terms of the loan to disadvantage the homebuyer.

SELLER FINANCING MORTGAGE TERMS

As with any real estate agreement, seller financing mortgage arrangements should be detailed in writing to ensure that both buyers and sellers understand their responsibilities under the contract:

Purchase price

Final price of the house

Down payment

how much the buyer is contributing as a down payment at closing. If there was an earnest money deposit, this amount is also included in the agreement.

Loan amount

Purchase Price minus [down payment, earnest money and other upfront payments].

Interest rate

In general, seller financing rates are higher than on traditional government-backed mortgages but can be negotiated by the parties. The maximum rate with us is 9.99% p.a. fixed up to 30yrs.

Loan term and amortization schedule

The loan term is the amount of time a buyer has to pay back the loan. Stated another way, it’s the number of monthly payments the buyer will make. The amortization schedule, on the other hand, reflects the period of time over which the loan is amortized—a number that determines the monthly payment amount.

Monthly payment

Seller financing mortgage terms include the number of monthly payments, due date, what constitutes late payment and whether there is a grace period.

Balloon payment details

Our seller financing mortgage arrangements are amortized up to 30 years but prospective homebuyers can have a term that’s much shorter. This may result in a balloon payment—or lump sum—that must be paid at the end of the loan term.

Tax and insurance payment

Although taxes and insurance payments are often rolled into traditional mortgages, buyers with seller financing mortgage may make those payments to governments and insurance companies directly. Either way, the seller financing mortgage agreement will describe who will be responsible for these payments.

Additional terms

Every real estate deal or circumstance is different so each seller financing mortgage agreement will spell out anything that’s unique to your deal. For example, selling a historic home, may include a requirement that the buyers not remove or otherwise alter certain elements of the home without your prior written approval.

SFM EXAMPLES

Example 1:

Here's how a seller-financed mortgage works: Say you want to buy your home for £225,000. You agree to home price of £225,000, but these buyers can't qualify for a loan from a traditional bank. A seller-financed mortgage via DCANS Mortgage can allow you to close the deal.

The buyer, then, may have to come up with a down payment of £10,000 and then borrow the remaining £215,000 of the home price in a seller-financed mortgage from DCANS Mortgage (Seller-Lender) and make pre-agreed monthly payments to DCANS Mortgage, just like you would have done with a traditional home mortgage from a bank or some other regulated nonbank lender.

Example 2:

A homebuyer wants to purchase a house that doesn’t qualify for a conventional mortgage due to its age and condition. The borrower offers to purchase the home for £80,000 with a £25,000 down payment—just over 30% of the purchase price. DCANS Mortgage agrees to finance the remaining £55,000 at an interest rate of 7% for a five-year term and amortized over 20 years—resulting in a balloon payment of about £47,000 due at the end of five years. DCANS Mortgage then sells it to the homebuyer and over the course of the loan, the buyer makes monthly payments of £426 and is responsible for property tax and insurance payments.

At closing, the buyer does not receive title to the home until the loan is fully paid off. After five years of on-time monthly payments, the buyer makes the final balloon payment and the buyer gets the title.

SFM FAQs

Is Seller-Financed Mortgage safe?

Seller-Financed Mortgage is a safe way to finance the purchase of a home as long as the buyers and sellers take precautions to protect their financial interests. Most importantly, the financing terms should be clearly spelled out in a written agreement that’s ideally prepared by a licensed attorney.

And, while seller financing eliminates the need for a lender-mandated appraisal (unless buying from another seller for onward sales to buyer) and inspection, buyers should consider taking steps to ensure the purchase price isn’t too high. Likewise, sellers don’t have to run a credit check on a buyer before agreeing to finance the sale. However, it’s a smart way to reduce the risks of seller financing and improve the likelihood of a buyer making on-time payments.

Related Pages

• Regulation & Compliance

• How We Operate

• Why Choose Us