As a second mortgage, seller financing has typically been used to bridge the dollar gap for a home buyer between the amount of the first mortgage and the down payment that he or she has available. It has also been used as wraparound financing (new financing that wraps around existing financing). But seller financing can also be used in the first lien position. This is more common of large parcels of bare land that conventional lenders have traditionally not financed.

So, what are the benefits of seller financing? Some of the major advantages include a substantial savings in closing costs for both buyer and seller. The parties can also negotiate the interest rate and the repayment schedule, as well as other conditions of the loan. The buyer can request special conditions of the purchase, such as the inclusion of household appliances or even vehicles. Also, the borrower does not have to qualify with a loan underwriter. And, unless negotiated, there are no PMI insurance premiums.

On the seller’s side, he or she could receive a higher yield on their investment by receiving their equity with interest. The seller could also possibly negotiate a higher interest rate than could be received on other types of investments. A higher selling price could also be obtained as compensation for assisting the buyer with financing. The property could be sold "as is", thus eliminating the need for costly repairs that conventional lenders would require. The seller could screen the buyer for creditworthiness and the ability to pay, and could also require the buyer to purchase a PMI policy to protect the seller against default. The seller could also choose which security document (mortgage, deed of trust, land sales document, etc.) to best secure his or her interest until the loan is paid.

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