Seller Financing: How It Works When the Seller Is the Bank

Seller financing — owner financing, seller carry, 'holding the paper' — is the oldest lending arrangement in real estate: the person selling the property also lends you the money to buy it. No bank underwriter, no committee. You and the seller agree on price, down payment, rate, and term; you sign a promissory note; a deed of trust or mortgage secures it against the property; and your monthly payment goes to the seller instead of a servicer. Done right, it's a legitimate tool that closes deals banks can't. Done casually, it plants a time bomb in year five. Let's do it right.

• Monthly income — a retiring landlord trades rent checks for note payments, keeping income without tenants.
• Tax spreading — an installment sale can spread capital gains across years instead of landing in one; their CPA runs that math.
• A faster, wider sale — properties that bank lending struggles with (unusual condition, mixed use, no comps) find buyers when the seller carries.
• Better price — sellers offering terms often command a premium. Flexibility gets paid for.

Speed and flexibility, mostly. Investors use seller financing to close quickly, to buy properties that don't fit standard boxes yet, or to negotiate terms no bank would print. Buyers rebuilding after a credit event use it as a bridge — buy now on seller terms, refinance into a standard loan once the waiting period passes. And self-employed buyers sometimes use it when their newest business hasn't produced enough history for traditional underwriting. In each case the pattern is the same: seller financing is the entrance, not the destination.

• The balloon — most seller notes amortize like a 30-year loan but come fully due in 3 to 7 years. That balloon is the deal's real deadline.
• The due-on-sale clause — if the seller still has their own mortgage on the property, their lender can call the loan when title transfers. This needs a professional's eyes before anyone signs.
• Real documentation — a recorded deed of trust, a proper note, title insurance, and ideally a loan servicer handling payments. Handshake versions of this go wrong in expensive ways.
• Fair terms — seller rates typically run above bank rates. That's the cost of flexibility; make sure the spread is worth it.

Here's the part to plan before you sign, not after: how you'll pay the balloon. The standard answer is a refinance — and for investment property, a DSCR refinance is purpose-built for it. Once the property has a season of rent history, the refinance qualifies on the property's own cash flow: if the rent covers the new payment, the deal works, with no tax returns and your LLC intact. Self-employed owner-occupants take the bank statement route instead. Either way, the time to confirm you're refinance-able is the week you negotiate the note — matching the balloon date to a realistic seasoning timeline, not hoping it works out.

Negotiate the note with your exit in mind: a term long enough to season the property, a rate that doesn't bleed you while you hold it, and no prepayment penalty so you can refinance the moment it makes sense. Record everything properly. Make every payment traceable — refinance underwriters will want to see the history. Then refinance on your schedule, not the balloon's. If you're looking at a seller-financed deal right now, send me the proposed terms before you sign; I'll tell you exactly how refinance-able it is and where the balloon date should sit.