Most real property (real estate) transactions for the sale and purchase of property involve a buyer who secures financing (a mortgage loan) from a bank for the purchase of the property and transfers the lump sum purchase price to the seller at the closing, in exchange for the seller transferring the deed (title) to the buyer—or to an escrow for safekeeping until the buyer repays the loan to the lender.

But if the buyer does not have good credit or a sufficient credit history—and especially if the seller wants to sell the property to a specific person—the seller may consider seller financing for the transaction. In a seller-financed transaction the buyer signs a promissory note promising to pay the purchase price of the property to the seller over time, plus a stated interest rate, which is included in a monthly installment payment projected over some number of months or years.

Seller financing is often structured for the buyer to make monthly payments for a number of years (five years, for example) and then make a balloon payment for the remaining balance of the loan. This seller financing structure anticipates the buyer being able to secure a traditional loan from a bank with improved creditworthiness and some equity in the property (a home, for example).

There are pros and cons to seller financing for both the buyer and the seller. Seller financing may reduce closing costs and shorten the time to closing, but the buyer may pay a higher interest rate and the seller will take on risk that the buyer will default on the payments and the seller will have to go through the legal process of evicting the buyer from the property.

In Hawaii, seller financing is a legal alternative to traditional mortgage loans where the seller acts as the lender to the buyer. This arrangement involves the buyer signing a promissory note agreeing to pay the seller the purchase price over time, with interest, through monthly installments and potentially a balloon payment at the end of a specified term. Seller financing can offer advantages such as lower closing costs and a quicker closing process. However, it also carries risks, including the possibility of the buyer defaulting on the loan, which could necessitate legal action by the seller to reclaim the property. Both parties should carefully consider the terms of seller financing and may benefit from legal advice to ensure that the agreement complies with Hawaii's real estate laws and regulations. It's important to note that such transactions must be properly documented and secured by a mortgage or deed of trust to protect both parties' interests. Additionally, sellers should be aware of the potential need to foreclose on the property if the buyer defaults, which is governed by Hawaii's foreclosure laws.