Owner Financing: Pros and Cons for Buyers and Sellers

Flexible Solutions for Today’s Real Estate Challenges

In today’s real estate market, flexibility can be the key to making a deal happen. With high interest rates, stricter lending guidelines, and property types that don’t qualify for conventional loans, both buyers and sellers are exploring creative alternatives. One of the most effective tools available is owner financing, also known as seller financing.

What Is Owner Financing?

Owner financing is when the seller acts as the lender. Instead of the buyer getting a mortgage from a bank or credit union, the buyer and seller agree on the down payment, interest rate, and payment schedule. The buyer then makes payments directly to the seller over time, and the property serves as collateral—just like with a traditional loan. In most cases, the buyer refinances or pays the remaining balance at an agreed-upon future date.

Owner financing can be used on nearly any type of property, including:

• Single-family homes

• Condos (including non-warrantable properties in Mammoth Lakes)

• USFS cabins on leased land in June Lake and other tracts

• Mobile and manufactured homes

• Investment or short-term rental properties

• Rural and unincorporated parcels of land in Mono County

It’s not just about unique properties—it’s also a solution for buyers with non-traditional income, self-employment, seasonal earnings, or those who can afford the property but don’t meet strict bank requirements.

Benefits of Owner Financing for Sellers

Potential for Higher Financial Return

By offering financing, sellers can earn interest on the financed amount—potentially resulting in a higher overall return than a traditional sale paid in full at closing.

Attract a Larger Pool of Buyers

Offering seller financing can make your property more appealing to buyers who may be strong candidates but cannot qualify under current lending rules.

Faster Closing and Fewer Financing Contingencies

Without a bank involved, closings can be quicker and involve fewer hurdles, which reduces the chance of a deal falling apart.

Drawbacks for Sellers

Risk of Buyer Default

If a buyer fails to make payments, the seller may need to initiate foreclosure to reclaim the property.

Delayed Full Payout

Sellers don’t receive the full purchase price immediately (unless a large down payment or short-term payoff is negotiated).

Servicing Responsibilities

The seller becomes the note holder and is responsible for collecting payments or hiring a loan servicing company.

Benefits of Owner Financing for Buyers

Flexible Qualification

Great option for self-employed buyers, independent contractors, or buyers with seasonal income who may not meet traditional underwriting standards.

Access to Unique or Hard-to-Finance Properties

Opens the door to purchasing properties on USFS land, non-warrantable condos, mobile homes, rural parcels, or properties that banks simply won’t finance.

Custom Payment Options

Terms can be tailored to meet the buyer’s income cycle, rather than forcing a conventional monthly payment schedule.

Drawbacks for Buyers

Interest Rates May Be Higher

Seller-financed interest rates are often slightly higher than traditional mortgages to compensate the seller for additional risk.

Future Payoff Required

Most agreements include a payoff date, requiring the buyer to refinance or pay off the balance in the future.

Due Diligence Is Still Essential

Even without a bank, buyers should obtain inspections, confirm title status, and understand property restrictions.

Real-World Example: USFS Cabin with Seller Financing

A USFS cabin in June Lake is listed for $350,000. Traditional lenders won’t finance it due to the land being leased from the U.S. Forest Service. The seller agrees to carry financing.

• Purchase Price: $350,000

• Down Payment: $70,000 (20%)

• Amount Financed: $280,000

• Interest Rate: 7%

• Payment Schedule: Twice per year to match the buyer’s seasonal income

• Balloon Due in 5 Years

Result:
The buyer secures a one-of-a-kind property that cannot be financed through typical lenders, and the seller earns steady income plus interest—all while expanding their potential buyer pool.

Advanced Benefits of Owner Financing (Sidebar)

Potential Tax Advantages for Sellers

In some cases, owner financing may qualify as an installment sale, allowing the seller to pay capital gains taxes gradually as payments are received—instead of all at once in the year of the sale. This can be beneficial for tax planning and income management.

Interest collected is taxed as ordinary income, and specific tax implications depend on individual circumstances. Sellers should consult a CPA to understand how this may apply.

Flexible Payment Structures for Buyers

Owner financing offers the ability to customize payment schedules to align with a buyer’s income cycle—monthly, quarterly, or even seasonal payments. This is especially helpful for buyers with non-traditional or seasonal income, such as business owners, tourism industry professionals, or commission-based earners.

This flexibility is not available through traditional lending and can make homeownership more accessible.

Final Thoughts

Owner financing can be a smart solution that creates opportunity for both sellers and buyers—especially in resort and rural markets or when traditional lending is not a perfect fit. It offers flexibility, can increase financial returns, and can unlock transactions that might not otherwise be possible.

Whether you’re buying or selling, the key is structuring the agreement properly, protecting both parties, and aligning the terms with your financial goals.

Considering owner financing?
I can walk you through your specific scenario and help determine if it’s a smart strategy for your property or purchasing goals.

Enjoy the Journey. Love the Destination.