Seller Financing

· 2 min read
Seller financing means you — the homeowner — act as the bank and let the buyer make payments to you instead of getting a traditional…

Seller financing means you — the homeowner — act as the bank and let the buyer make payments to you instead of getting a traditional mortgage. It’s not common, but it can be a powerful tool when conventional lending won’t work for either party.

How It Works

You sell the home and carry a promissory note from the buyer. They make monthly payments to you (principal plus interest) over an agreed-upon term, typically 5-30 years. You hold a lien on the property just like a bank would, and if the buyer defaults, you can foreclose.

The sale price, interest rate, down payment, and repayment schedule are all negotiated between you and the buyer. There’s no underwriter, no bank approval process, and no 45-day closing timeline. Deals can close in as little as two weeks.

Why Sellers Do It

Monthly income is the big draw. Instead of a lump sum at closing, you receive steady payments with interest — often at rates higher than what you’d earn in a savings account or CD. A seller carrying a $200,000 note at 7% collects about $1,330/month for 30 years.

It also expands your buyer pool. Buyers who can’t qualify for traditional financing — self-employed borrowers, those with credit hiccups, or people buying unique properties that banks won’t finance — become viable purchasers.

The Risks

Default is the obvious concern. If the buyer stops paying, you’re stuck with foreclosure proceedings that can take months and cost thousands in legal fees. You also have the property back on your hands, possibly in worse condition.

There are regulatory requirements too. The Dodd-Frank Act restricts seller financing in some situations, particularly if you do it frequently or on your primary residence.

Who Should Consider It

Seller financing works best when you own the home free and clear (no existing mortgage to pay off), don’t need the full sale proceeds immediately, and want steady investment income. Always involve a real estate attorney to structure the deal properly.

Check the selling guide for more creative selling strategies, and use the net proceeds calculator to compare a traditional sale against a seller-financed deal.