How Seller Financing Works (and How to Do It If You Have Equity)

What Is Seller Financing?

Seller financing, sometimes called owner financing, is a creative way to sell a home where you, the seller, act as the lender.
Instead of a buyer getting a traditional bank loan, you agree to let them make payments directly to you over time.

It’s a win-win when done right: the buyer gets flexible terms, and the seller earns interest income and may sell faster - even in a shifting market.

Why Seller Financing Is Possible When You Have Equity

If you’ve built up significant equity in your home (you own your property outright or owe less than its market value), you hold a powerful financial position. That equity gives you the ability to:

• Offer financing directly without needing to pay off a full mortgage first

• Control your terms — interest rate, down payment, length of loan, and protections

• Earn interest income on the financed portion

• Open the door to more buyers who might not yet qualify for traditional loans

In simple terms: equity = flexibility. The more of your home you own, the more room you have to negotiate creative financing that works for both sides.

How Seller Financing Works Step-by-Step

Here’s what the process typically looks like:

1. Buyer and Seller Agree on Price & Terms
   You’ll negotiate not just the price but also the down payment, interest rate, monthly payment, and loan term (often 3–5 years before a refinance).

2. A Promissory Note and Deed of Trust Are Created
   These documents legally protect both parties — outlining payment terms, interest, and what happens in case of default.

3. The Buyer Takes Possession, You Keep the Note
   Title transfers to the buyer, but you retain a secured interest in the property until the note is paid off.

4. Buyer Makes Payments to You Directly
   You can use a servicing company to handle payments, ensuring ease and compliance.

5. When the Note Matures, Buyer Refinances or Pays You Off
   Often, the goal is for the buyer to refinance into a conventional loan once they’re financially ready.

Example: Turning Equity into Opportunity

Let’s say you own a home in Phoenix valued at $800,000, and your mortgage balance is $200,000.
You have $600,000 in equity.

You could sell the home for full market value and offer to finance $300,000 to a qualified buyer.
They bring a down payment, take over your existing mortgage (if assumable), and pay you monthly on the financed balance.

You:

• Receive monthly income with interest

• Potentially sell faster

• May defer capital gains over time (always consult a CPA)

The buyer:

• Gets a property they love, even if they’re not yet ready for traditional lending

It’s creative, strategic, and rooted in the power of equity.

Benefits of Seller Financing (for Sellers)

✅ Faster sale — attract a wider buyer pool
✅ Monthly income — turn equity into passive cash flow
✅ Potential tax advantages — spread out capital gains
✅ Better control — set your own terms and protect your investment
✅ Win-win structure — you help someone become a homeowner while maximizing your return

Common Questions About Seller Financing

🟡 Do I need to own my home free and clear?
Not always. You can structure seller financing if your existing mortgage is small compared to the home’s value — this is called a wraparound mortgage. Work with a real estate attorney or broker experienced in creative finance to ensure compliance.

🟡 What if the buyer stops paying?
You’re protected by the note and deed of trust. Just like a bank, you can foreclose to reclaim the property. This is why having the right documentation and professionals involved is essential.

🟡 How long do seller-financed loans usually last?
Typically 3–5 years before the buyer refinances. Some extend longer depending on your comfort level and market trends.

When Seller Financing Makes Sense in Phoenix

In today’s market — where interest rates fluctuate and affordability is stretched — seller financing can make a home more marketable and help serious buyers bridge the gap.
It’s especially effective for:

• Sellers with high equity or no mortgage

• Unique or luxury properties with a smaller buyer pool

• Investors seeking steady cash flow without property management hassles

A Strategic Move, Done with Care

Seller financing is not a one-size-fits-all solution — but when structured properly, it can turn equity into opportunity. It’s a way to serve others, create financial leverage, and keep your investment working for you even after you sell.

If you’re curious whether seller financing makes sense for your home, I’d love to walk you through real-world scenarios and numbers that make it clear.

Anna van Ham
Real Estate Broker Associate | Design & Construction Manager
Elevated Home Real Estate & Elevated Home Design + Build
📍 Phoenix, AZ
✨ “People experience joy, live connected, and elevate.”