Definition
Owner financing describes the same arrangement as seller financing: the person who owns the property carries the loan instead of a bank. The terms are spelled out in a promissory note and secured by a mortgage or deed of trust recorded against the home, just like a traditional loan. Sellers use it to reach buyers who can't qualify for conventional financing, or to sell a property that banks are reluctant to lend against. It can widen your pool of potential buyers considerably, but it requires patience, careful buyer screening, and proper legal paperwork to protect your interest in the home.
Example
Lisa's buyer had strong income but a recent bankruptcy that made him ineligible for a bank loan, and she worried the sale might fall through entirely. Rather than lose the buyer, Lisa agreed to owner-finance the purchase with 15% down and a five-year term at a fair interest rate slightly above what a bank would have charged. Her attorney drew up a promissory note and recorded a deed of trust so Lisa retained a legal claim on the property throughout the loan term, protecting her in case payments ever stopped. She also ran a credit check and verified the buyer's income before finalizing the terms, just to be sure he could realistically keep up with the payments. The arrangement let Lisa sell quickly while still collecting a solid return on the money she carried instead of demanding all cash upfront. Her buyer made every payment on time for the full five years, and Lisa never had to pursue foreclosure or renegotiate the note.