Seller Financing in Real Estate | Benefits, Risks & How It Works

Seller Financing in Real Estate: A Win-Win Option for Buyers and Sellers

Seller financing — also known as owner carry financing — is an alternative way to buy and sell real estate that can benefit both parties. Instead of the buyer securing a traditional bank loan, the seller acts as the lender and “carries” the loan for the buyer.

While some states offer boilerplate owner-carry forms, it’s wise for sellers to consult a real estate attorney. Every transaction has its nuances, and a well-drafted contract can prevent costly misunderstandings.

Why Choose Seller Financing?

Seller financing isn’t just for buyers who can’t get a conventional loan. It can be a strategic choice for sellers too.

Advantages for Sellers:

• Spread Out Capital Gains Taxes – Instead of paying taxes all at once, sellers can spread the burden over several years.

• Sell Unique or Un-Financable Properties – Homes that are difficult for buyers to finance through banks can still sell quickly.

• Earn Interest Income – The seller can set an interest rate, creating ongoing cash flow while still getting the agreed sales price over time.

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Common Structures for Seller Financing

Seller financing can be arranged in a few different ways. The two most common are the Land Sale Contract and the Deed of Trust with Promissory Note.

1. Land Sale Contract

• Seller holds the title until the loan is fully paid.

• A memorandum of understanding is recorded with the county.

• If the buyer defaults, forfeiture can be faster and more favorable for the seller than foreclosure.

• Buyer’s rights are limited — major changes or sales often require seller approval.

2. Deed of Trust with Promissory Note

• Buyer holds the title from the start.

• The deed of trust is recorded against the property.

• Buyer can refinance more easily when ready.

• Generally considered cleaner and more favorable for buyers compared to a land sale contract.

Which Option Is Best?

• For Sellers: A Land Sale Contract may offer more control and a quicker remedy in case of default.

• For Buyers: A Deed of Trust provides greater ownership rights and flexibility to refinance.

Whichever you choose, both require clearly defined terms for payment schedule, interest rate, remedies for default, and any property restrictions.

Final Thoughts

Seller financing can unlock deals that traditional lenders might reject — helping sellers access more buyers and allowing buyers to purchase properties that may otherwise be out of reach.

With the right legal guidance and a knowledgeable real estate professional, seller financing can be a flexible, profitable, and mutually beneficial arrangement.

Seller Financing FAQ

1. Is seller financing legal?
Yes. Seller financing is legal in most U.S. states, but specific rules, disclosures, and contract requirements vary. Always work with a real estate attorney familiar with your state’s laws.

2. What are the risks of seller financing?
For sellers, the main risk is buyer default. For buyers, the risk is that the seller may still have a mortgage, which could create complications if the lender calls the loan due. Proper due diligence and contract protections help reduce these risks.

3. Does seller financing require a down payment?
In most cases, yes. The down payment amount is negotiable and typically ranges from 5% to 20%, depending on the property and the parties’ agreement.

4. Can you refinance out of seller financing?
Yes. Many buyers use seller financing as a short-term solution and later refinance into a traditional mortgage once they qualify.

5. Who pays property taxes in seller financing?
Unless otherwise stated in the contract, the buyer is usually responsible for property taxes, insurance, and maintenance from the date of purchase.

Sam Densmore/All Rights Reserved/8/14/2025