Seller Financing: What Home Sellers Should Know

Seller financing can help you sell your home faster, especially in a slow market, but you have to navigate the obstacles associated with it.

If you’ve never heard of seller financing, you’re not alone. Seller financing — also known as owner financing — is much more common when selling a business than when selling a home.

But with the tight competition to make your property stand out from the others in the market, seller financing might be the way you get a good price and a quick sale on your home. So what is seller financing, how does it work, and when does it make sense? Let’s dig in.

What is seller financing?

People usually finance buying a house through a bank or other traditional lending institution. That’s where most homeowners send their mortgage payments every month.

With seller financing, you, the seller, provide the buyer with a short-term loan for part or all of the purchase price minus a down payment. The buyer makes monthly payments to you, which includes interest. You and the buyer sign a promissory note, which stipulates the loan terms, including the repayment schedule and interest rate.

When and for whom selling financing makes sense

Seller financing can make sense in certain markets or situations. In HomeLight’s Top Agent Insights for End of Year 2023 report, real estate professionals noted that buyers last year struggled with high interest rates, compelling agents to advise sellers to “take more aggressive steps to convince buyers to buy.”

About 20% of the surveyed agents believe that offering flexible financing incentives is helpful in selling homes in a sluggish market. In this type of market, seller financing could be worth considering in certain situations, including the following:

When you would rather have a staggered income over a few years versus a lump sum payment: This is common among sellers nearing retirement. A consistent income stream provides financial stability over a one-time payment.

When an otherwise perfect buyer won’t qualify for a traditional mortgage: This may be because they just moved to the area, are going through a divorce, or the property type is difficult to get a mortgage for.

Perrin Cornell, an East Wenatchee, Washington agent with over 100 Single Family Home transactions, elaborates that this situation can include when you’re selling “a hundred acres of land or even just twenty acres of land, depending where it’s located. Or an older house that needs a whole lot of renovation, and the buyers are planning on renovating it and flipping it.”

When you’re selling a farm: The largest lender for farm financing is the federal government, but those loans can take anywhere from six to 24 months to process and maybe you don’t want to wait two years.

Generally, seller financing enables you to offer a better rate than the banks while still making a profit for yourself. For buyers on a budget (which is most of them), lower interest rates could be the reason they bid for your home versus another comparable one.

Dylan Snyder, a Jupiter, Florida top real estate agent with nearly 25 years of experience, says he’s only had clients use seller financing a couple of times because “all the stars have to be in line. It doesn’t always happen.”