Purchasing a home with seller financing requires the signing of a promissory note by both buyer and seller, recording the note with the public records authority with jurisdiction over the property location, and the buyer paying the loan over time, according to Nolo. Seller-financed homes are more difficult to find and have both advantages and disadvantages for both parties.

When a seller finances a home, he extends credit to the buyer instead of receiving cash when the deal closes, indicates Nolo. Sometimes seller-financed mortgages amortize the payments as if the buyer plans to pay off a 30-year mortgage but require a balloon payment, or a sizable final payment, at a set point from the purchase date. The time between closing the sale and the balloon payment gives the buyer an opportunity to improve his credit so he qualifies for a standard home mortgage.

Most states allow the sale of a home even though the seller has a mortgage on the property; however, buyers should exercise caution with these purchases, warns Bankrate. Most mortgages include a clause requiring payment of the mortgage upon the sale of the property, but lenders usually do not enforce the clause as long as they receive payments on time. If lenders enforce the clause, buyers can lose their homes unless they have the resources to pay the mortgage.