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    Financing

    Seller Financing

    SilverCrest EstatesThe SilverCrest Estates Team

    Definition

    In seller financing, you take on the role of the lender: instead of receiving the full purchase price at closing, you accept payments over time under a promissory note. You keep a recorded lien against the property until the buyer pays off the balance, so if they stop paying, you have a legal path to reclaim the home. This arrangement can spread your tax liability across multiple years and create steady monthly income, but it also means you don't get all your cash up front, and you're taking on the risk that the buyer might default. It works best when you own the property free and clear, since most existing mortgages include a due-on-sale clause that complicates carrying financing on top of them.

    Example

    Tom sold a fully paid-off rental house for $220,000, collecting $30,000 as a down payment and carrying the remaining $190,000 himself at 7.5% interest over seven years. He received a monthly check instead of a lump sum, with the remaining balance due in full as a balloon payment at the end of the term. He worked with a real estate attorney to draft the promissory note and record a lien against the property, so he had a clear legal path to reclaim the home if payments ever stopped. Tom also required his buyer to carry adequate homeowners insurance and prove it annually, since he still had a financial stake in the property's condition. The arrangement gave Tom steady retirement income without the day-to-day burden of being a landlord, and it let him spread his tax liability across several years instead of paying it all at once. When the balloon payment came due, his buyer refinanced with a bank and paid Tom off in full, right on schedule.

    Frequently asked questions

    The biggest risk is the buyer stopping payments, which forces you to go through a foreclosure process to reclaim the home. Screening the buyer carefully, requiring a real down payment, and using an attorney or title company to draft the note all reduce that risk.

    It's much simpler if you do. If you still have a mortgage, that loan almost certainly contains a due-on-sale clause that the lender could invoke once ownership transfers.

    It's frequently treated as an installment sale, meaning your gain is spread across the years you receive payments rather than taxed all at once. A tax professional can confirm how it applies to your specific situation.

    You can sometimes sell the promissory note itself to a note investor for a lump sum, though usually at a discount. Otherwise, a straightforward cash sale is a more direct way to get all your proceeds at once.

    Ask for proof of income, run a credit check, and require a meaningful down payment. Those steps go a long way toward confirming the buyer is likely to pay reliably over the life of the note.

    Probably not, since payments arrive over months or years rather than all at once. If you need cash immediately, a straightforward sale to a cash buyer gets you fully paid out at closing.

    Related terms

    Owner FinancingPromissory NoteBalloon PaymentContract for Deed
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