Seller Financing: How It Works When You Sell Your Home (2026)

Updated November 2026. Rates, federal rules and state laws below were read on November 6, 2026.

Seller financing means you act as the bank. The buyer pays you part of the price over time under a signed note, instead of borrowing it all from a lender. As of November 5, 2026, a 30-year fixed mortgage averaged 7.18% (Freddie Mac), and that’s the number your buyer will hold your rate against.

Jump to: 🤝 How it works · 💲 The numbers · 🪜 Federal rules · 🏠 Taxes · 📍 Florida & Texas · ❓ FAQ

How does seller financing work?

You and the buyer agree on a price, a down payment, a rate and a schedule. At closing, the buyer gets the deed and you get the down payment, plus two documents. The promissory note is the promise to pay. The mortgage or deed of trust ties that promise to the house, so you can take the home back through foreclosure if the payments stop.

Some deals use a contract for deed instead. There, you keep legal title until the buyer finishes paying. It sounds safer for you. It often isn’t, as the Texas section below shows.

The rest of the sale looks familiar. You still need a purchase contract, your state’s disclosures and a clean title. Our paperwork checklist for selling a home covers those. The glossary has a short definition of a seller carry-back if a buyer’s agent uses that term with you. Buyers tend to find these deals when they’re short on cash, and our guide for low-cash buyers shows how the same deal looks from their side.

What does a seller-financed sale look like in dollars?

Here’s one example. The home sells for $400,000 and the buyer puts down $80,000. You carry the other $320,000 on a 30-year schedule, with the balance due in full after 5 years. These are our own calculations, not market quotes, and the rate is whatever you two agree on.

Look at the last column before you get excited about the third one. After 5 years of payments, the buyer has only paid down about $17,000. So that final payment is big, and the buyer will almost certainly need a bank loan to make it. If rates are high or their credit hasn’t improved by then, you’ve got a problem too.

Also compare it with a regular sale. A buyer with a bank loan gets you the whole price at closing, less your payoff and your share of closing costs. Here, $320,000 of your money stays tied up in one house and one borrower. The interest is your pay for that.

What federal rules apply to a seller who finances?

The main one is Regulation Z, 12 CFR 1026.36. It sets two exclusions from the definition of “loan originator.” Fit one and those originator rules don’t reach you. Miss both, and they can.

Two details trip people up. Under the 3-property exclusion, the home’s value doesn’t count as evidence that the buyer can pay. You need to look at the buyer, not the collateral. And “fully amortizing” leaves no room for a balloon, while the 1-property wording only bars negative amortization. So our 5-year example could only work under the 1-property exclusion. Ask your attorney to confirm it, because state licensing rules can be stricter.

For adjustable rates, the CFPB’s commentary treats a cap of 2 points a year and 6 points over the life of the loan as reasonable.

How is seller financing taxed?

The IRS calls this an installment sale: at least one payment arrives after the tax year of the sale. You report it on Form 6252, and you include only the part of the gain you actually receive each year. You can elect out and report it all in the year of sale.

A simplified example, before selling costs: you’re single, you sell for $600,000 and your basis is $200,000. That’s a $400,000 gain. If you pass the 2-out-of-5-year ownership and use tests, you can exclude $250,000 ($500,000 on a joint return). The IRS leaves excluded gain out of gross profit, so yours is $150,000, or 25% of the price. On $120,000 down, you’d report $30,000 of gain that year. Then $250 of every later $1,000 in principal is gain.

If you don’t pass those tests, we’ve written about capital gains outside the 2-year rule.

Three more things to give your tax pro:

• Interest is ordinary income. It goes on Schedule B with the buyer’s name, address and Social Security number, and you give the buyer yours. Skip that and you may owe a $50 penalty.
• Charge too little and the IRS can treat part of the principal as interest. The November 2026 applicable federal rates are 4.67% short-term, 5.08% mid-term and 5.52% long-term (annual compounding).
• Sell the note later for cash and your gain or loss is what you receive minus your basis in the note. Any deferred tax comes due then.

How do Florida and Texas handle it?

Florida. Mortgages are taxed when recorded: 35 cents per $100 in documentary stamps, plus a one-time intangible tax of 2 mills. On our $320,000 note that’s $1,120 plus $640, or $1,760, on top of the stamps on the deed. Your contract should say who pays. Foreclosure runs through the courts, since Florida law says “all mortgages shall be foreclosed in equity.” That takes time and legal fees. Our Florida owner financing contract guide walks through the clauses and the state’s interest limits.

Texas. A note with a deed of trust usually means a faster remedy. After a default on a residence, the servicer gives at least 20 days to cure. Notice of sale goes out at least 21 days ahead, and the auction happens on a first Tuesday. Owners who make no more than 3 such loans in 12 months are exempt from the state’s loan originator licensing law.

A Texas contract for deed on a buyer’s residence is heavier. You must record it within 30 days of signing, and you owe the buyer a statement every January showing payments and balance. Once the buyer has paid 40% or made the equivalent of 48 monthly payments, forfeiture is off the table and you’d have to sell through a trustee. Recording triggers the same rule. Texas even treats a residential lease with a purchase option as this kind of contract, with some exceptions.

Other states differ, sometimes a lot. Ask a local real estate attorney before you sign.

What can go wrong, and how do you lower the risk?

The big risk is simple. The buyer stops paying, and you’re paying a lawyer to get back a house that may have been neglected. A bank turned this buyer down, or the buyer chose not to ask one. Find out which.

Here’s what we’d do before saying yes:

• Pull the buyer’s credit report with written permission, and collect pay stubs and tax returns. Treat it like a lender would.
• Ask for a real down payment. Someone with $80,000 in the house walks away less easily than someone with $5,000.
• Pay off your own loan at closing. Federal law lets a lender enforce a due-on-sale clause, and a sale isn’t on the list of protected transfers. Our guide on what happens to your mortgage when you sell explains the payoff.
• Require homeowners insurance naming you, and proof that property taxes get paid.
• Use a loan servicer. It collects payments, keeps the records and sends year-end statements, so you aren’t chasing checks yourself.
• Have an attorney draft the note and security document, and a title company close and record them.

How do you offer seller financing on your listing?

Don’t put it in your public remarks. MLS rules generally keep financing terms out of that text, so it goes in a separate field. Our FAQ on why a property description gets flagged lists what doesn’t belong there. Then treat each offer on its merits: price, down payment, rate, term and the buyer’s file. A cash or bank-financed offer at a lower price can still leave you ahead.

You can do this with a traditional agent or on your own. It’s your choice. If you list your house yourself, Beycome is a full platform to sell, buy and close, and our packages put your home on the major home search sites and the MLS in 17 states and DC. Basic is $99 ($129 in California and Illinois), Enhanced is $399 and Concierge is $1,399, with $0 at closing. State forms are in your dashboard under Legal Forms. On Concierge, an expert works with you through the offers, and every decision stays yours. The loan terms are yours and the buyer’s to set, with your attorney.

Beycome Title handles closings in Florida, Texas, Michigan, Ohio, Illinois and Indiana. We’ve worked with 22,000+ homeowners who saved over $225 million (Beycome internal data, October 2026).

Seller financing questions