Seller Financing in Texas
In seller financing, the seller acts as the lender and takes a promissory note secured by a deed of trust instead of the buyer getting a bank loan. It works for land, commercial property and homes, but federal law and the Texas SAFE Act restrict who can finance residential sales and how, particularly when the seller does this more than occasionally. A seller should use a proper note, deed of trust and servicing plan, and get legal advice before offering terms.
How it works
- Buyer and seller agree on price, down payment, rate, term and payment schedule.
- Title transfers to the buyer by deed.
- The buyer signs a promissory note and a deed of trust securing the note against the property.
- The buyer pays the seller, directly or through a servicer, until payoff.
- If the buyer defaults, the seller can foreclose under the deed of trust, following Texas procedures.
Residential rules
Federal Dodd-Frank rules and the Texas SAFE Act regulate residential mortgage loan origination and impose ability-to-repay and licensing requirements. Exemptions exist for sellers who finance a limited number of sales, who sell their own property, and who meet other conditions. Texas also regulates the way the loan is documented and recorded. If the seller finances several homes, or the property is not their own, exemptions may not apply and a licensed loan originator may be needed. Check the current rules before offering terms.
Documents
| Document | Purpose |
|---|---|
| Promissory note | The buyer's promise to pay, with rate, schedule and late charges |
| Deed of trust | Secures the note and lets the seller foreclose without going to court first, if it follows Texas law |
| Warranty or special warranty deed | Transfers title to the buyer |
| Title insurance and survey | Protect both sides and set the starting point for the lien |
Risks for sellers
- A buyer who stops paying leaves the seller to foreclose and take back the property, which costs time and money.
- The seller's own mortgage, if any, may have a due-on-sale clause that triggers when title transfers.
- Usury limits cap the interest rate, and Texas has rules for each type of loan.
- Servicing errors can create liability, especially for homestead properties.
Alternatives and cautions
Some sellers use a contract for deed, in which the seller keeps title until the buyer pays in full, but Texas regulates it closely for residential property. See contract for deed in Texas. Because the rules differ for homes, land and commercial property, structure the deal with an attorney. For title issues see title commitments.
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Book Free ConsultationFrequently asked questions
Can I finance the sale of my home to a buyer?
Often yes, but federal and Texas rules apply, and exemptions depend on how many sales you finance and other conditions.
Is seller financing the same as a contract for deed?
No. In seller financing, title transfers at closing and the seller holds a lien. In a contract for deed, the seller keeps title until payoff.
What if the buyer stops paying?
The seller can foreclose under the deed of trust, following the procedure in the Property Code.
Does my existing mortgage matter?
Yes. A due-on-sale clause could let your lender call your loan when you sell.