How Are Owner-Financed Loan Interest Rates Set?

Owner-financed loans are a great option for many when it comes to purchasing land. The process has many advantages, including avoiding bank-financed loans. While there are a few downsides, such as higher interest, owner-financing can still work in your favor. 

Owner-financing can bring great advantages to those who are struggling to get traditional financing due to low-credit, no credit, or low income. Those who are looking to flip a property may also benefit from an owner-financed loan. 

Keep reading to learn about the process of owner-financed loans. SRC Land can help you through the whole process, from finding land to getting your financials in order. 

What Does Owner-Financing Mean?

An owner-financed loan, also known as seller-financing, is a type of real estate agreement in which the seller of the property extends credit to the buyer. The buyer then pays the seller directly on the agreed-upon date. 

Owner-financing functions the same as any other loan, except the seller is in control of the loan, rather than a financial institution. This allows fewer people to be involved in the process since banks, loan officers, and appraisers are not needed. These types of loans can carry a slightly higher risk to sellers; however, you can still try to negotiate the terms to fit your needs.

What is the Process of Getting an Owner-Financed Loan?

At the beginning of the process, expert help is always recommended. Real estate agents are a great source for setting up owner-financed loans. Once the seller and buyer have agreed upon the purchase price, sales contracts and a promissory note will be drawn. The promissory note can include the following: 

  • Contract terms
  • Payment amount
  • Payment dates 
  • Interest rates
  • Late fees
  • Balloon payment amounts

Owner-financed loans typically last 5 to 10 years, but some go up to 30 years. Owners typically do not like longer terms, but some are willing to negotiate. The state will require a record of the contract for public records. This is usually documented with a form called a deed of trust. At the end of the payment period, a large sum called a balloon payment is made to finish off the rest of the loan. 

What to Expect When Negotiating Interest Rates

Since the seller is in control of the loan, they set the interest rate, which means it may be slightly higher than the current market trends. If you are looking into this type of loan due to insufficient credit or because you are unable to get a bank loan, you may need to accept a higher rate.

Building a good, trusting relationship with the seller can also help you during negotiations. To negotiate a lower interest rate, you can suggest a larger balloon payment, higher down payments, or a shorter-term loan.

The Pros and Cons of Owner Financing

As with any type of lending, there are benefits and risks. Make sure the benefits outweigh the risks for you by reviewing the list below.


  • Ability to negotiate terms 
  • Cheaper and quicker than bank lending
  • No closing costs
  • No bank appraisals
  • No private mortgage insurance
  • Available to those with insufficient credit


  • Higher interest rates
  • Balloon payment
  • Higher down payment
  • Shorter terms

SRC Land Can Help Solve Your Owner-Financing Concerns

Like any type of loan, setting up an owner-financeed loan takes quite a few steps. Still, owner financing is far from impossible. Countless buyers have successfully used seller-financed loans to access landownership, and you can too. 

With expert help from SRC Land, you can find the right piece of land and a seller-financed loan to fit your needs. Don’t wait another day; contact your real estate experts to begin your search for land in Harlingen, Texas and learn more about owner-financed loan opportunities today!

If you want your own piece of land but are concerned about the financial process, contact SRC Land for help!

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