Seller financing — also called owner financing or a seller carry — means the property seller acts as the bank. Instead of a buyer getting a mortgage from a lender, the seller carries a note: the buyer pays the seller principal and interest over time. In tight credit environments and on older 2-4 unit properties that banks dislike, seller financing can be the difference between buying and walking away.
How a Seller Carry Note Works
A typical structure:
- Purchase price: $280,000 duplex
- Buyer down payment: $28,000 (10%)
- Seller carries: $252,000 note
- Terms: 7% interest, amortized over 30 years, balloon in 5 years
- Payment: ~$1,677/month P&I to the seller
The buyer takes possession and ownership (via deed), and the note is secured by a mortgage or deed of trust in the seller's favor — exactly like a bank would hold.
The Legal Structures (Know the Difference)
- Installment sale / seller-carry mortgage: buyer gets the deed now; seller holds a lien. Strongest protection for the buyer.
- Land contract (contract for deed): seller keeps the deed until the buyer pays in full. Buyer has equitable rights only — risky if the seller faces foreclosure, divorce, or tax liens. Avoid when possible.
- Wraparound mortgage: the seller's existing mortgage stays in place and the buyer's new note "wraps" around it. Carries due-on-sale risk on the underlying loan.
Why Sellers Agree to Carry
- Income stream: a retired owner trades a lump sum for monthly payments with interest — often better than a CD
- Tax deferral: installment sale treatment spreads capital gains over years (talk to a CPA; see our 1031 exchange guide for related strategies)
- Faster sale: properties with deferred maintenance or odd layouts attract few financed buyers
- Higher price: buyers often pay a premium for financing availability
Why Buyers Love (and Must Respect) It
- No bank underwriting: no DTI, no reserves requirements, no appraisal (though you should get one anyway)
- Negotiable everything: rate, amortization, balloon — it is a private deal
- Speed: close in days, not weeks
The Risks You Must Manage
- Due-on-sale: if the seller's existing mortgage has one (nearly all do), wrapping without the lender's consent can trigger full acceleration. Always check for underlying liens.
- Balloon refinancing risk: most carries balloon in 3-7 years. Your exit is a refinance or sale — underwrite both at today's rates plus a stress case.
- Title and insurance: get title insurance and a lender's-style policy protecting your interest; record the mortgage; use a loan servicer (e.g., a note servicing company) to document payments.
- Seller's problems become yours: if the seller stops paying their underlying debt or owes back taxes, your position can be impaired. A real estate attorney is non-negotiable here ($800-$1,500 well spent).
- No credit reporting: your on-time payments may not build your credit unless the note is serviced through a reporting servicer.
How to Negotiate a Seller Carry
- Find motivated sellers: free-and-clear owners (no mortgage), tired landlords, inherited properties, long market times. A free-and-clear owner is the ideal carry candidate — no due-on-sale risk.
- Lead with their benefit: pitch the income stream and tax deferral, not your need.
- Reasonable down payment: 10-15% shows commitment; zero-down asks rarely get signed.
- Fair rate: at or slightly above bank rates (7-8% in a 6.5% environment) is credible; lowball rates insult the seller.
- Balloon with a plan: 5-7 years with a stated refinance path.
- Paper everything: attorney-drafted note + recorded mortgage + title policy + servicing company.
Underwrite It Like Any Other Deal
A seller carry changes the financing, not the property math. Run the full deal — rents, expenses, NOI, and the note payment — through the Multifamily Cash Flow & NOI Calculator before you sign, and check the payment coverage with the DSCR Loan Calculator to confirm your refinance exit will be viable at balloon time.