Seller Financing 101: How Sellers Finance a Home Sale
What seller financing is, why sellers carry the note, the common structures, and who originates and services the loan after closing.
Seller financing is a home sale in which the seller carries the buyer's loan instead of sending the buyer to a bank. The buyer signs a promissory note and a security instrument, takes the property, and pays the seller in monthly installments over an agreed term. The seller becomes the lender of record, with the right to collect payments and the duties that come with carrying the loan:
- post each payment,
- send the buyer IRS Form 1098 each year,
- keep accurate records, and
- administer taxes and insurance if the loan escrows.
Seller financing and owner financing are two names for the same arrangement.
Carrying the note turns a sale into an income stream, and into a set of lender duties that run for the life of the loan.
The short version
- Seller financing means the seller carries the buyer's loan instead of sending them to a bank; the seller becomes the lender of record.
- Sellers do it to reach more buyers, earn interest, and spread the taxable gain over the term.
- Two common structures: a deed-of-trust note (the buyer takes title) or a contract for deed (the seller keeps title until paid off).
- Origination and servicing are separate licensed roles: an RMLO writes the loan; a servicer runs it after closing.
This is educational information, not legal, financial, or tax advice. Consult a licensed professional about your specific situation.
What is seller financing?
Seller financing is any sale in which the seller of a property finances the buyer's purchase rather than the buyer borrowing from a third-party lender. The seller steps into the lender's chair. At closing, the buyer signs a promissory note that sets the principal, interest rate, term, and payment schedule, and a security instrument that secures the loan against the property. The buyer then pays the seller directly, on the schedule in the note, until the balance is paid or the property is sold or refinanced.
Some people call it a seller carryback. Whatever the label, the seller holds the paper. The buyer makes a real mortgage payment every month; it simply goes to the seller, or to a servicer the seller engages, rather than to a bank.
Why would a seller finance a home sale?
Sellers carry the note for concrete reasons, not as a favor. Four motives recur:
- Reaching more buyers. A large share of working buyers cannot pass an automated underwriting engine: thin credit files, self-employment income, a recent credit event, or a property a conventional lender will not touch. Many can make a monthly payment. Seller financing reaches that buyer.
- Interest income. The financed balance earns interest at a retail rate over the term. For a seller who does not need all the proceeds in cash at closing, the note is a yielding asset.
- Selling a hard-to-finance property. Raw land, rural tracts, and manufactured homes can be difficult to finance through a bank. Carrying the note removes the buyer's financing contingency.
- Spreading the gain. Installment-sale treatment can spread the taxable gain across the years the buyer pays, rather than recognizing it all in the year of sale. How that applies to a given sale is a question for a tax professional.
The trade-off sits on the other side of the ledger. Carrying the note means taking on the buyer's credit risk and the recordkeeping, reporting, and default obligations of a lender for the life of the loan. Those duties do not pause; they run every month until the note is paid off.
What are the common structures for seller financing?
Two structures are common across the country, and the choice between them is made at closing.
In a mortgage or deed-of-trust note, the seller delivers a deed and the buyer takes legal title at closing; the seller records a lien securing the promissory note. This looks like an ordinary mortgage, with the seller in the bank's position. It is familiar to title companies and to note buyers, which makes the note cleaner to hold or to sell later.
In a contract for deed (also called a land contract or installment contract), the seller keeps legal title until the buyer satisfies the contract, while the buyer holds equitable title and possession from day one. This structure can carry lower closing costs and is sometimes used for small-dollar or land-only sales, but its default mechanics differ sharply from a deed-of-trust note and are regulated heavily in many states.
The two structures carry different consequences when a buyer stops paying. In Texas, a deed-of-trust note forecloses non-judicially under Tex. Property Code §51.002, while contracts for deed are governed by Tex. Property Code §5.061 and the executory-contract rules that follow it. The owner financing in Texas guide walks through how the documents and the structure fit together.
How common is seller financing, and where?
Seller financing is a national arrangement, but its volume is concentrated. In 2025, roughly 87,212 seller-financed notes worth about $29.5 billion were created in the United States (NoteInvestor / Advanced Seller Data Services, 2025):
- Texas led every state, accounting for 24.7% of all U.S. seller-financed notes, roughly three times the next-largest state.
- Residential property made up 62% of seller-financed notes by count.
- About 86% of notes were created by individuals doing a single deal.
The numbers describe a market driven less by institutions than by individual sellers carrying one note at a time.
Who originates a seller-financed loan?
Origination is the work of writing the loan: qualifying the buyer, drafting the note and security instrument, and meeting the disclosure requirements that apply to a residential mortgage. On owner-occupied residential property, this is regulated work. Federal law under the SAFE Act, layered with state licensing, requires that residential origination run through a licensed Residential Mortgage Loan Originator (RMLO). A seller cannot simply hand a buyer a homemade note on a residential deal and assume it complies.
Moat is a licensed Texas mortgage servicer, NMLS 1419346. It is a servicer, not an originator. For sellers financing Texas residential property, origination runs through a Texas-licensed RMLO, who provides compliant origination, document generation, and borrower qualification, and can establish escrow at origination with reserves collected upfront. Sellers financing property in another state should use their own state-licensed RMLO.
What the industry commonly does: roughly 20% down, about 10% interest, and a fully amortizing term that pays the balance to zero over the life of the loan. Those are market norms, not advice for a specific deal. Route the specifics to a licensed RMLO or an attorney.
Who services a seller-financed loan after closing?
Servicing is the ongoing administration of the loan once it is written. It runs for the life of the note and covers:
- posting each payment the day it clears,
- sending the buyer IRS Form 1098 each year,
- keeping accurate records, and
- disbursing escrow to the taxing authority and insurer on time so nothing lapses.
A seller can perform this work directly or hand it to a licensed servicer.
Moat services only notes secured by Texas property. For a Texas seller-financed note, servicing runs $35 per month for a non-escrowed note and $40 per month for an escrowed note, with a one-time $150 setup. Every fee is published up front, there is no contract, and you give 30-day notice to terminate. See the full Texas note servicing fee schedule for the complete list.
Moat onboards performing notes only. If a serviced loan later goes into default, Moat keeps servicing it. If it reaches roughly 120 days delinquent with no resolution and no instruction to foreclose, the note has to be offboarded.
Foreclosure itself is handled only when the lender separately elects foreclosure services. When a lender does elect it, the non-judicial notices under Tex. Property Code §51.002 have to be exact, and a defective notice can restart the clock.
If your seller-financed note is secured by property outside Texas, Moat does not service it; use request your state for a referral.
Seller financing 101, answered
What is seller financing?
Seller financing is a home sale in which the seller carries the buyer's loan instead of sending the buyer to a bank. The buyer signs a promissory note and a security instrument, takes the property, and pays the seller in monthly installments over an agreed term. The seller becomes the lender of record and holds the right to collect payments and the duties that come with carrying the loan. Seller financing and owner financing are two names for the same arrangement.
Why would a seller finance a home sale?
Sellers carry the note to reach buyers who cannot qualify for a conventional mortgage, to earn interest income on the financed balance, to sell a property that is hard to finance conventionally, and to spread the taxable gain across the term through installment-sale treatment. The trade-off is that the seller takes on credit risk and the recordkeeping, reporting, and default duties of a lender for the life of the loan.
What are the common structures for seller financing?
Two structures are common nationally. In a mortgage or deed-of-trust note, the buyer takes legal title at closing and the seller records a lien; in a contract for deed, the seller keeps legal title until the buyer satisfies the contract and the buyer holds equitable title and possession. The structures carry different default mechanics. In Texas, deed-of-trust foreclosure runs under Tex. Property Code §51.002 and contracts for deed are governed by Tex. Property Code §5.061.
Who originates and services a seller-financed loan?
Origination and servicing are two separate, licensed roles. On residential property, originating the loan is regulated work that must run through a licensed Residential Mortgage Loan Originator (RMLO) under the SAFE Act. Servicing is the ongoing administration after closing: posting payments, sending IRS Form 1098, keeping records, and administering escrow. Moat is a licensed Texas servicer, NMLS 1419346, and services only notes secured by Texas property; sellers outside Texas can request a referral to a servicer in their state.
Have a seller-financed Texas note to service?
Moat services notes secured by Texas property only. Schedule a consultation and we'll review your loan documents and quote the boarding. If you are weighing whether to offer financing as a seller, the how to offer seller financing in Texas guide covers the process. For a note secured by property in another state, use request your state and we'll point you toward a servicer there.
About Moat Note Servicing
Moat Note Servicing is a Texas-licensed mortgage servicer (NMLS 1419346) based in San Antonio. We service residential, commercial, land, and contract-for-deed notes secured by Texas real estate. This guide is general information about Texas mortgage law and servicing practice; it is not legal advice. For your specific situation, talk to a Texas attorney.