What seller financing is
In a seller-financed sale, the buyer pays you over time. You and the buyer agree on the terms, and the buyer makes payments to you instead of a bank.
Some local investors are open to buying with seller financing as another option. You can ask about it when you talk with them.
Because the buyer pays you over time, the sale can look a little different from a standard closing. You still sign a contract and close, but the payments continue afterward.
When it can fit
Seller financing is most common when the home has no mortgage. If there is still a loan, the existing lender usually needs to be paid off or involved.
Some sellers like the idea of steady payments over time. Others like having more ways to structure a sale. A tax professional can explain how payments over time may affect your taxes.
- You own the home outright, or nearly so.
- You don't need all of the sale money at once.
- You like the idea of regular payments.
- You're comfortable working with an attorney on the terms.
How it generally works
Most seller-financed sales use two main documents. The details vary by state, but the basic idea is similar in many places.
The promissory note is the buyer's written promise to pay. It lists the amount, the interest rate, the payment schedule, and what happens if payments stop.
The deed of trust or mortgage secures the note with the home. Which document is used depends on your state. It is usually recorded with the county.
Many sellers use a third-party loan servicer to collect payments, track balances, and send year-end statements. That can keep the arrangement organized for both sides.
- Promissory note: the buyer's promise to repay on agreed terms.
- Deed of trust or mortgage: links the debt to the home as security.
- Deed: transfers ownership to the buyer at closing.
- Closing statement: shows the down payment and amounts handled at closing.
Terms to talk through
Every deal is different, and the terms are something you and the buyer agree on. Writing them down clearly helps everyone.
It also helps to agree on how late payments will be handled and how either side can ask questions. Clear terms set up a good working relationship for years to come.
- The down payment.
- The interest rate and whether it's fixed.
- How long payments last.
- Who pays property taxes and insurance.
- Whether a loan servicer will collect payments.
- What happens if the buyer sells or refinances.
Federal rules that may apply
Federal lending rules can apply to some seller-financed home sales. These include rules from the Dodd-Frank Act and the SAFE Act, which the Consumer Financial Protection Bureau administers in part.
The CFPB's Regulation Z has exclusions for some seller financers. For example, there are separate exclusions for sellers who finance one property, or three or fewer properties, in a 12-month period. Each comes with conditions on the loan terms.
Whether a rule applies depends on your facts and your state's laws. An attorney can review your plan and help you stay on the right side of these rules.
Use an attorney
Since you're acting as the lender, a real estate attorney is a key part of the team. They can draft the note and security documents and explain your state's rules.
A title company or closing attorney usually handles the closing and recording. This guide is general information, not legal or tax advice.
General information, not legal or tax advice.