Selling with seller financing

Why sellers offer it

• More buyers. Many buyers cannot get a bank loan for land, rural homes, small businesses or older properties. Financing lets them make an offer.
• Interest income. The unpaid balance earns interest at the note's rate for as long as the loan runs.
• A faster sale. No lender appraisal or underwriting, so a deal can close in a few weeks.
• Capital gains spread over time. An installment sale can let you report the gain as payments arrive rather than all in the year of sale (IRS Form 6252). Ask a tax adviser how it applies to you.
• A lien on the asset. You keep a recorded lien until the loan is paid off, and can foreclose if the buyer stops paying.

How to set terms

Each of these is negotiated with the buyer and written into the promissory note. See what seller financing is for how the pieces fit together.

• Down payment. Many sellers ask for 10 to 30 percent. More down gives the buyer more to lose and you more cushion if you take the asset back.
• Interest rate. A fixed rate is simplest. Check your state's maximum rate; a rate below the IRS applicable federal rate can have tax consequences.
• Term and balloon. 3 to 10 years is common, with payments figured on a longer schedule. State the date the remaining balance is due.
• Late fees. Set a grace period and a late fee within your state's limits.
• Prepayment. Say whether the buyer can pay off early without a penalty. Most buyers will ask.

Protecting yourself

• Run a credit check on the buyer and ask for proof of income, such as tax returns or bank statements.
• Have a real estate attorney draft the promissory note and the deed of trust or mortgage, and record them with the county.
• Buy a lender's title insurance policy that covers your lien.
• Require the buyer to insure the property with you named on the policy, and ask for proof every year.
• Use a loan servicing company to collect payments, track the balance and send year-end statements.

Legal limits

For residential property, the Dodd-Frank Act and the SAFE Act limit how often an owner can finance a sale without a licensed loan originator. Finance more than three residential properties in 12 months and you generally have to work through one. Below that the loan still has to meet conditions to stay exempt, including rules on balloon payments and on checking the buyer's ability to repay.

How to list here

1. Create a free account. New accounts start with 20 credits.
2. Add your listing with photos, a description and the price.
3. Pick the terms you would accept. We suggest a rate for each down payment and term; change any of them or add your own.
4. Publish for 4 credits.

Buyers search by the down payment and monthly payment they can manage, so they find your listing when one of your options fits. They message you and send offers here. Want more eyes on it? Featuring a listing for 30 days costs 20 credits and shows it first in search and on the home page.