Seller Financing remains a niche market. But — not that niche.
We often wonder why the seller carry-back market, despite being in existence for hundreds of years, is still a relatively unknown market. It is not overly complex. The benefits to sellers, buyers, and investors are significant. The real culprit? Misinformation.
For both buyers AND sellers, private mortgage notes can be a powerful alternative to bank financing. But, many folks stay clear because of common misconceptions.
It’s time to set the record straight about owner financing.
10 Seller Financing Myths – Get the Facts
Myth #1 – Seller Financing is Too Risky
All investments carry risk; it’s part of the game. Seller financing is no different — but it can be structured to minimize risk.
Smart home sellers reduce their owner financing risk by:
- Requiring a down payment
- Reviewing buyer credit
- Verifying income and the ability to repay
- Having professionals help with title and docs
- Using a loan servicing company to track payments
- Collecting escrows for taxes and insurance.
The great thing is these same items that help reduce risk also increase a note’s value.
Myth #2 – Once You Create a Note, You’re Stuck with It
There is always an exit strategy.
Whether it’s because you need your money now, are getting tired of collecting payments, or are frustrated with the borrower, you have the option to sell your note.
Investors purchase both performing and non-performing notes (though delinquent notes take specific investors and come with a larger discounts). You can also sell all of your note or just some of it!
Myth #3 – If You Don’t Own the Property Free and Clear, You Can’t Owner Finance
Enter the “wraparound mortgage.”
You can sell a property using seller financing even if you still owe money (as long as you provide proper disclosures and documentation). You can collect your monthly payments while ensuring you stay on top of your original mortgage payments.
While there are risks of a lender exercising any due on sale clause, these can be mitigated with proper structuring and servicing.
One important note: if you decide to sell your wrap note in the future, most note buyers will want your original mortgage to be paid out of the proceeds. Selling the note and paying off the underlying loan is also a solution to any due on sale issues.
Myth #4 – Seller Financing is Only for Buyers with Bad Credit
While owner financing can help buyers who don’t qualify for bank loans, it’s not exclusive to those with poor credit.
Many qualified buyers turn to owner financing for various reasons, including hard-to-prove self-employment income, unconventional properties, desire for flexible terms, and more.
Myth #5 – It’s Not Legal
It’s 100% legal.
This myth comes from confusion surrounding the Dodd-Frank Act. It put in place consumer protection guidelines for buyers living in the property as their primary home that can also apply to owner financing. However, it does not alter the legality.
When in doubt, utilize a Mortgage Loan Originator (MLO) and qualified attorney to be sure you stay compliant.
Myth #6 – You End Up Accepting Less Money
Wrong! The flexibility of owner financing often helps sellers get top-dollar for their home or property.
First, you have access to a larger pool of buyers. And for cases of hard-to-finance properties, you aren’t stuck with cash buyers only. Additionally, you receive interest income!
Myth #7 – You Give Up Control if You Offer Owner Financing
You actually get MORE control when offering financing. You get to set the terms from the down payment to the interest rate to the default remedies. You can also require escrows for taxes and insurance.
Owner financing puts you in the driver’s seat.
Myth #8 – Owner Financing is for a Buyer’s Market
No, it works in all kinds of markets!
In competitive markets, seller financing can help sellers achieve the full asking price or sell unique properties that banks might otherwise refuse to finance. In slower markets, offering flexible funding makes your property stand out and attract more offers.
Myth #9: Seller Financing Doesn’t Provide Immediate Benefits
While you won’t receive the full sales price of your home upfront, as with bank financing, you can still secure a decent sum.
We highly suggest requiring a down payment when offering seller financing — usually at least 15%-20%. This helps increase the resale value of the note, reduces your risk, and puts money in your pocket from the start.
Myth #10 – Only Real Estate Investors Offer Owner Financing
Most seller financing is done by “mom-and-pop” home sellers, who create one note per year. While real estate investors do get in the game, they only made up 14% of new notes created in 2024.
Don’t let outdated misconceptions prevent you from exploring owner financing. Done right, it’s a flexible and powerful tool for sellers, buyers, and investors.
Are you looking at creating notes? Check out our Creating Notes Master Class!
Leave a Reply