Selling with a down payment plus monthly payments can open the door to buyers a bank would not approve. It also puts you in the bank’s place: if the buyer stops paying, the problem is yours, and you have no legal or collections department behind you.

If you want to know how to list your home on Casa STL, that is in How to sell a St. Louis home with owner financing. This article covers something else: the risks you take on and what to decide, with professional help, before you advertise “financing available.”

The risks that fall on you

  • The buyer stops paying. Getting the house or the money back takes time, costs, and a legal process.
  • The house comes back in worse shape. A house that returns after a default may bring deferred repairs or damage.
  • Taxes or insurance go unpaid. Missouri law treats delinquent property taxes as a state lien on the house that can be collected through a sale of the property. And an uninsured house can lose value overnight to a fire or storm.
  • Your own mortgage. If you still owe on the house, check whether your mortgage has a due-on-sale clause. Federal law generally lets the lender enforce that clause and demand the full balance if you sell or transfer the house without its consent. Review your loan documents with an attorney before offering financing.
  • Your money is tied up. Your proceeds turn into payments over years. If you need cash soon for another purchase, this may not work for you.

Decide the structure with an attorney

The form of the contract defines your risks and the buyer’s. Broadly, there are two ways to set it up: the buyer receives the title at closing and you hold a recorded security interest in the house, or you keep the title until the last payment (contract for deed). We explain the difference, from the buyer’s side, in Contract for deed: who holds the title while you pay the owner.

Whatever the structure, do not assume lending rules do not apply to you. A Missouri-licensed real estate attorney can tell you which structure fits your case, which rules apply, and draft the documents.

Federal rules may apply to you

When you sell a home and finance the purchase yourself, federal law can treat you much like a lender. Regulation Z includes limited exceptions for sellers who finance only a few properties, but each one has conditions about how many sales, who built the house, and how the payments are structured. Do not assume you qualify. Ask your attorney to confirm, in writing, which rules apply to you before you set the terms.

Treat every buyer the same

The Fair Housing Act prohibits discrimination in the sale of housing based on race, color, national origin, religion, sex, familial status, or disability. If you plan to offer financing, decide in writing what you will review (for example, down payment, income the buyer can show, payment references) and apply it the same way to every interested person.

Protect the house while you are being paid

These are topics to work out with your attorney and make clear in the contract. This is not a list for drafting it yourself:

  • Insurance. Who pays it, what coverage it needs, and how you will confirm it stays in force.
  • Taxes. Who pays them and how payment is confirmed each year. Some sellers use a separate escrow account or a servicing company.
  • Recording. How and where the sale documents are recorded in the City or County of St. Louis.
  • Title. A title search before you sell, especially if you inherited the house or bought it at a tax sale.
  • Payments with a paper trail. An outside loan servicer can collect payments, send statements, and keep a neutral record for both sides.
  • Disclosures. If the house was built before 1978, the federal lead-based paint rule generally requires giving the buyer certain information before they sign. Disclose known defects in writing.

Taxes: talk to a CPA

Receiving the price in payments can change when you pay tax on the gain. The IRS explains that an installment sale is one in which you receive at least one payment after the year of the sale, and that it is generally reported using the installment method, with exceptions. There are also rules on minimum interest. A CPA can run your numbers before you set the price and terms.

Have an exit plan

Think from the start about how the deal ends: the buyer refinances with a bank and pays you off, you finish collecting over the agreed term, or you sell the note to an investor. Also think about what happens if you pass away: how the payments continue and who they belong to. A well-documented contract with recorded payments is easier to handle in any of those cases.

Before you advertise “financing available”

  • You confirmed with your attorney whether you have a mortgage that prevents selling this way.
  • You have a recent title search.
  • You decided the contract structure with a Missouri-licensed real estate attorney.
  • Your attorney reviewed which federal and Missouri rules apply to you.
  • You have written criteria that are the same for every buyer.
  • You know how insurance, taxes, and payments will be handled.
  • A CPA reviewed the tax effect.

If after that you want to list your home, the Sellers page explains what information we ask for. Casa STL connects buyers and sellers; we are not your attorney, your CPA, or your lender.

Sources

Educational information, not legal or tax advice. Every sale, contract, and situation is different, and Missouri and federal law determine what applies. Before offering financing, consult a Missouri-licensed real estate attorney and a CPA.