How seller financing works
Seller financing (also called owner financing) is when the property owner acts as the lender, letting the buyer make payments directly to them instead of getting a bank mortgage. It's become more common as bank lending standards have tightened, giving both sides more flexibility to structure a deal that works.
Common structures
Wraparound mortgage
The seller keeps their existing mortgage in place and extends a new, larger loan to the buyer that "wraps around" it. The buyer pays the seller, and the seller keeps paying the underlying lender, often pocketing the difference in interest rates.
Land contract (contract for deed)
The buyer takes possession and makes payments, but the seller keeps legal title until the full price is paid off, at which point the deed transfers to the buyer.
Lease option
The buyer leases the property with the right (but not the obligation) to buy it later, often with a portion of rent credited toward the eventual purchase price.
Owner carry
The buyer gets the deed at closing, same as a traditional sale, but the seller finances all or part of the price with a promissory note secured by the property, similar to being the bank.
Legal basics to know
In the U.S., the Dodd-Frank Act and SAFE Act limit how many properties an individual can seller-finance in a 12-month period without being a licensed loan originator, and impose rules such as banning prepayment penalties and requiring a reasonable determination that the buyer can repay the loan. These rules can vary by state and by whether the property is the buyer's primary residence. This is general information, not legal advice — see our disclaimer and talk to a real estate attorney before finalizing any agreement.
Why buyers and sellers choose it
- Buyers who don't qualify for a conventional mortgage may still qualify with a seller.
- Sellers can sell faster, sometimes at a premium, and earn interest income over time.
- Closing costs and underwriting timelines are typically lower than a bank loan.