Learn › Structuring the note
Price, rate, term, and down payment: the four dials, and what each one costs the other side
These aren't four independent fields on a form. They're a single trade space — move one and you've quietly moved what the other side is actually getting.
Every seller-financed offer is built from four numbers: the price, the interest rate, the term (how long the note runs), and the down payment. Treat them as four separate boxes to fill in on a form and you'll negotiate badly, because they aren't separate — they're one trade space, and moving any one of them changes what the seller is actually receiving, whether or not the headline price on the contract changes at all.
The concession that doesn't look like one
Say a seller wants $315,000 for the reference-deal property and a bank-equivalent 7% rate. If you instead offer $315,000 at 5%, the sticker price hasn't moved — but you've handed the seller a note worth meaningfully less in present-value terms, because every dollar of interest they were counting on has shrunk. The seller may not notice this immediately; the calculator will. That's exactly what the terms-value math in Module 3 makes explicit: a rate concession is a price concession wearing a disguise.
The same logic runs through term and down payment. Stretching the term from 15 years to 25 lowers the monthly payment — attractive to a buyer — but it also means the seller waits far longer for the bulk of their money and takes on more total risk of the buyer eventually defaulting or the market changing underneath them. A larger down payment does the mirror-image favor for the seller: it reduces their exposure and gives them cash sooner, and it's usually the single fastest way to make a below-market rate or a longer term palatable to a nervous seller.
Reading the trade space instead of guessing at it
- Lower rate, same price → seller receives less overall value; usually needs a larger down payment or shorter term to accept it.
- Longer term, same rate → lower monthly payment for the buyer, more total interest paid, and more time for something to go wrong for the seller.
- Larger down payment → the strongest lever for getting a seller to accept a below-market rate, because it reduces their risk immediately rather than asking them to trust a promise over years.
- Higher price, below-market rate → a common combination on owner-financed deals; the buyer effectively pays a premium for access to financing they might not otherwise qualify for.
Worth knowing — The formula underneath this
A note's monthly payment is the payment that fully amortizes the loan amount over its term at the stated rate: PMT = P × i / (1 − (1 + i)⁻ⁿ), where P is the amount financed, i is the monthly rate, and n is the number of payments. Every one of the four dials above feeds directly into this one formula — which is exactly why moving one changes what the others quietly mean.
None of this means every trade is fair or unfair in the abstract — a seller who badly needs speed might rationally accept worse terms than one who doesn't. The point is that you should be able to say, in dollars, what any given combination is actually worth to each side before you propose it — not discover it after the ink is dry. That's precisely the calculation the next few lessons build toward.