The seller becomes the lender — financing the buyer's purchase.
Seller financing (or "owner financing" or "seller carry-back") is when the property seller lends part or all of the purchase price to the buyer, accepting a promissory note instead of cash at closing. The seller becomes the lender; the buyer makes payments to the seller over time per the note terms.
Seller financing solves several problems at once. It lets the seller close a deal in markets where buyer financing is hard to get (high rates, tight credit). It can produce higher sale prices because buyers will pay more for flexible terms. It generates ongoing income (interest payments) for the seller after closing. And it can offer tax advantages — installment sale treatment spreads the seller's capital gains over the note's term rather than all in year one.
Structures vary widely. Full seller financing — the seller is the only lender — is uncommon but happens with motivated sellers or unusual properties. More common: partial seller carry-back where the buyer brings cash, gets bank financing for the majority, and the seller carries back a 10–20% subordinate note. This lets the buyer make the purchase with less cash than would otherwise be required.
Rate and term on seller carry-backs reflect motivation more than market rates. A motivated seller (retiring, estate situation, off-market sale) might carry back at 5–6% with 30-year amortization and a 10-year balloon. A less motivated seller demands more — 8–10% interest with a 5-year balloon. The buyer should always document the note properly, including title insurance protecting the seller's lien position.
Seller financing has structural risks for both parties. The seller takes on credit risk (the buyer might default), interest rate risk (the rate is locked in for years), and inflation risk (note payments lose real value). The buyer faces balloon risk (refinance or sale required at maturity), subordination risk (in default, senior bank lender takes priority), and limited refinance options (some institutional lenders don't recognize seller financing in DTI calculations).
| Purchase price | $650,000 |
| Buyer cash down | $130,000 (20%) |
| Bank senior loan (65% LTV) | $422,500 |
| Seller carry-back note | |
| Principal | $97,500 |
| Rate | 7.5% interest-only |
| Term | 5-year balloon |
| Position | Subordinate to bank loan |
| Monthly seller note payment | ~$609 |
| Balloon payment at year 5 | $97,500 |
When the property seller lends part or all of the purchase price to the buyer, accepting a promissory note instead of cash at closing. The seller becomes the lender.
To close deals in tight credit markets, command higher sale prices, generate ongoing interest income, and use installment sale tax treatment to defer capital gains over time.
Varies widely — 5–10% depending on seller motivation. Motivated sellers offer below-market rates for the right buyer; less-motivated sellers demand premium rates.
Yes — partial seller carry-backs subordinate to bank senior debt are the most common structure. The bank gets first-position lien; the seller gets a subordinate note for the gap between cash + bank loan and full price.
Balloon risk (refinance required at maturity), subordination risk (in default the bank takes priority), and limited refinance options (some institutional lenders don't recognize seller carry-back debt cleanly).
Matrix refinances seller financing balloons into DSCR, bridge, or commercial perm — locking in long-term rates on properties you're ready to hold.
