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Owner Financing in Tennessee Explained: Down Payments, Terms & FAQs

  • willbaugher
  • Aug 28
  • 2 min read

What is owner financing?

The seller acts like the bank. You make a down payment, sign promissory note + deed of trust (or contract for deed, if used), and pay monthly until paid off or refinanced.

Key terms you’ll negotiate

  • Price & Down Payment: 5–20% is common; higher down = stronger approval, and possibly even a lower rate.

  • Interest Rate & Term: Fixed rates are simplest; typical terms 3–30 years. Owner financing generally comes with a higher interest rate than a bank loan.

  • Balloon: A lump-sum payoff due at a set future date (e.g., 5–10 years). Many owner finance loans do not have a balloon payment, but you'll want to ask.

  • Escrow: Monthly collection for property taxes and insurance.

  • Late Fees & Grace Period: Know exact dates/amounts.

  • Prepayment: Ask for no penalty to refinance early, sell, or make extra payments.

  • Servicing: 3rd-party servicer keeps records and sends statements—highly recommended, not always required.

Example payment snapshot (illustrative)

  • Price $300,000, 12% down ($36,000)

  • $264,000 financed at 8.5% for 30 years → P&I ≈ $2,028/mo

  • Add estimated taxes/insurance via escrow to get full payment

What documents are used?

  • Purchase Agreement + Financing Addendum (if not covered in the Purchase Agreement)

  • Promissory Note (payment terms)

  • Deed of Trust / Mortgage or Contract-for-Deed (security instrument)

  • Disclosure Addenda (balloon, due-on-sale, etc.)

  • Servicing Agreement (if using a note servicer)

Practical protections for buyers

  • Ensure title search and recording at closing.

  • Keep taxes/insurance current through escrow.

  • Get proof of payment monthly from servicer.

  • Understand any balloon dates well in advance.

FAQs

Is a credit check required? Not always—income and down payment often matter more.

What if the property has an HOA? Add HOA dues to your budget; confirm status with the HOA before closing.

Can I refinance later? Yes—many buyers refinance into a traditional loan after on-time payment history.

What if the seller still has a mortgage? It can be structured legally; make sure insurance, escrow, and servicing are handled correctly.


Want simple, transparent owner-financing? See current Tennessee listings and get matched with sellers on SEPFinancing.com/buy.

 
 
 

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