A type of financing where a seller legally owns a property until the buyer repays the loan

Contracts of sale are a creative way for buyers to purchase a home without having to qualify for a loan or to pay closing costs. The contract is made between the buyer and seller with the lender's approval.

Here's how it works: (1) the seller holds onto the existing mortgage (2) the seller names the property's selling price (3) the seller offers the buyer a loan at a higher interest rate than the existing mortgage (4) the buyer pays the seller a fixed monthly amount (4) the seller uses part of this money towards the existing loan and then pockets the difference (5) the seller hands over the contract on the home when the buyer is paid up.

The buyer can sell or refinance the property, even though the seller holds legal title (ownership) of the property. This arrangement is commonly called an installment sales contract or agreement of sale.

Compare: Wraparound mortgage