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How to Sell a Home Using Owner Financing

by Steve Lander, studioD

Offering owner financing can be a win-win situation for both you and the buyer. You benefit by potentially being able to charge more for your property and close the sale quickly. Owner financing also lets you spread your payments and your potential tax liability out over time. The buyer wins because she doesn't have to go to a bank. For a well-qualified buyer, this saves time and money, but for a buyer with credit issues, this may be the only way that she can buy a home.

Offer Owner Financing

Define the type of owner financing you want to offer. Owner financing typically takes three forms -- a lease-option, a contract for deed, and an owner-carried mortgage. While state laws vary, the lease-option gives the buyer the least rights while the owner-carried mortgage gives the buyer all of the rights of ownership and puts you in the same position as a bank. If you don't fully understand how these different forms of financing impact you, and your real estate agent can't give you a good explanation, consider talking to a real estate attorney in your state.

Advertise the availability of owner financing on your property. Whether you're doing a for sale by owner or you're using a real estate agent to represent you, it's important to let potential buyers know that owner financing is an option.

Keep an open mind as buyers come in. Your owner financing offer will probably attract buyers with nontraditional credit histories. After all, if they could get a loan from a bank, they might not be as interested in your property. A buyer that had financial trouble in the past isn't necessarily a buyer that will have trouble paying your loan in the future.

Include the terms of the owner financing in the purchase agreement, including getting permission to investigate the buyer's credit, rental and criminal history and to cancel the transaction if the information doesn't meet your expectations. Your real estate agent or attorney can help you draft the terms and agreement.

Setting Terms and Closing

Require a down payment. Down payments don't just give you some money to pay the costs of sale, including your real estate agent's commission. They also force the buyer to put some skin in the game, increasing the likelihood that she will make her payments. If she doesn't put anything down, your house is essentially a rental, but if she puts 5, 10 or 20 percent down, she would lose a lot of money if you took the house back.

Negotiate an interest rate that is acceptable to both parties. It's not uncommon for interest rates on owner-financed properties to be a bit higher than the rate that a mortgage lender or bank would charge.

Set an acceptable loan term. If you don't want to be tied to the buyer for 30 years, you might choose to set up a loan with payments that are spread over 30 years, but that has a balloon payment in five or seven years. This gives the buyer time to get ready for alternative financing and lets you get your money back.

Have the buyer fill out a loan application and research the information that she provides. You can access bankruptcy, credit, criminal and rental records for the buyer online. If the buyer doesn't pass muster, cancel the contract.

Close the transaction and have the buyer sign your financing documents. If you can't get legal forms from your title company or real estate agent, have your attorney draft them.


  • If you owe money on your house, you might find it difficult to provide owner financing without first paying off your mortgage.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

Photo Credits

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