Yes, a seller can finance the sale of their own house in Colorado. The buyer gets the deed at closing, the seller becomes the lender, and the seller's loan is secured by a deed of trust on the property. It can solve real problems: a buyer who can't qualify for a bank loan yet, a seller who wants monthly income instead of a lump sum, or a property a conventional lender won't touch. But it comes with federal lending rules, Colorado licensing rules, and a few title issues that sink deals when nobody catches them early.
How seller financing works at closing
A seller carry-back closes a lot like a normal sale. The difference is that part of the purchase price is paid with a promissory note to the seller instead of cash from a bank.
- The buyer gets the deed. Title transfers at closing, the same as any other sale.
- The buyer signs a promissory note to the seller for the financed amount.
- The buyer signs a deed of trust securing that note. It gets recorded in the county, and in Colorado, foreclosure on a deed of trust normally runs through the county Public Trustee.
- The seller can get a lender's title policy on their loan, just like a bank would.
- The buyer gets an owner's policy on the property.
The seller doesn't get their full proceeds at closing. They get the down payment (minus their closing costs and any payoff of their own loan), then monthly payments after that.
A quick example
| Item | Amount |
|---|---|
| Purchase price | $450,000 |
| Buyer's down payment (20%) | $90,000 |
| Seller carries | $360,000 |
| Rate / amortization | 7% fixed, 30 years |
| Monthly principal and interest | $2,395 |
| Balance after 5 years | About $338,900 |
If that loan had a 5-year balloon, the buyer would need to refinance or sell to pay roughly $338,900 at year five. That's the plan on most carry-backs, and it's also the biggest risk. Whether a balloon is even allowed depends on which federal exclusion the seller is using (more on that below).
The first problem: the seller's existing mortgage
If the seller still has a loan on the property, that loan almost certainly has a due-on-sale clause. Transfer the deed, and the lender can call the full balance due.
That's why "wraparound" deals, where the seller keeps their old loan in place and the buyer pays the seller, who pays the bank, are risky. The lender doesn't have to accelerate the loan, but it can. If it does, the seller owes the full payoff and the buyer's financing falls apart.
The clean version of seller financing is usually a seller who owns the property free and clear, or who has enough equity to pay off their loan at closing from the buyer's down payment. If the seller has a low-rate VA or FHA loan and the goal is to pass that rate on, look at a formal loan assumption instead. That's the version the lender actually approves.
Federal rules: Dodd-Frank and the seller-financing exclusions
When the buyer is a consumer buying a home to live in, federal rules treat the seller like a loan originator unless the seller fits one of two exclusions:
| One-property exclusion | Three-property exclusion | |
|---|---|---|
| Who can use it | Individuals, estates, and trusts | Individuals and entities, including LLCs |
| How many | Financing for 1 property in any 12 months | Up to 3 properties in any 12 months |
| Balloon payment | Allowed | Not allowed — loan must fully amortize |
| Buyer's ability to repay | No formal determination required | Seller must make a good-faith determination |
| Negative amortization | Not allowed | Not allowed |
Under both, the seller has to own the property, and the seller can't be someone who built the home as part of their normal business. Rates have to be fixed, or adjustable only after the first five years with reasonable caps.
The detail that trips up investors: an LLC can't use the one-property exclusion. So an LLC seller who wants a balloon on an owner-occupant buyer has a problem.
These rules generally apply to consumer loans on a dwelling. Investor-to-investor deals and loans to buyers who won't live in the home are usually treated differently. Either way, have an attorney confirm which rules apply before anyone signs.
Colorado rules: what the seller and the agents can and can't do
Colorado has its own version of this in the mortgage loan originator licensing law. A seller (a person, estate, or trust) can finance the sale of property they own without a mortgage loan originator license if the property secures the loan and they stay within three residential properties in any 12 months, along with meeting the other requirements in the statute.
The bigger issue for agents: real estate brokers can't negotiate the loan terms unless they're also a licensed mortgage loan originator. That's been the Colorado Real Estate Commission's position for years. Brokers can list and sell a property with seller financing. They can't take the loan application or work out the rate, term, and payment.
The standard Colorado purchase contract still lets you check "seller financing," but it no longer has blanks for the loan terms. Those terms belong in loan documents drafted by a Colorado attorney or a licensed mortgage loan originator. The title company won't draft them either.
What title needs on a seller-financed closing
- Signed loan documents (promissory note and deed of trust) prepared by an attorney or loan originator, in hand before closing
- Payoff of any existing loan on the property, unless the lender has formally approved something else
- Lender's policy instructions if the seller wants coverage on their loan (they should)
- Hazard insurance naming the seller as mortgagee or loss payee
- A decision on servicing: does the buyer pay the seller directly, or does a third-party servicer collect payments and track taxes and insurance?
- Clear figures for the settlement statement: price, down payment, carry-back amount, and any second loan
If there's also a bank first mortgage with the seller carrying a second, the bank has to approve the seller second. Some loan programs restrict that. Find out before the contract is signed.
Seller financing vs. a contract for deed
Some sellers ask about an installment land contract, where the buyer makes payments but doesn't get the deed until the loan is paid off. It's far less common in Colorado and puts the buyer in a weaker spot. They're paying like an owner without holding title, and the seller could die, get a judgment, or file bankruptcy along the way. The normal Colorado setup of deed plus deed of trust protects both sides better. If someone wants a contract for deed, that's an attorney conversation.
When seller financing actually makes sense
- Free-and-clear seller who wants monthly income and is fine spreading the gain over several years (talk to a CPA about installment-sale tax treatment)
- Hard-to-finance property: unusual construction, condition issues, mixed use, or land
- Buyer with a solid down payment who's short on job history or credit and plans to refinance
- Investor-to-investor deals where both sides understand the risk
It's usually a bad fit when the seller needs all their cash now, the seller has a large existing loan, or the buyer has little money down. A buyer with 3% down on a seller carry is a buyer who can walk away with little to lose. The seller then has to foreclose to get the house back. Here's how long a Colorado foreclosure takes.
Frequently asked questions
Is seller financing legal in Colorado?
Yes. It has to fit the federal seller-financing rules and Colorado's licensing exemptions, or a licensed mortgage loan originator has to be involved. The loan documents should be prepared by a Colorado attorney or a licensed loan originator.Can a real estate agent write up the seller-financing terms?
Not unless they're also a licensed mortgage loan originator. A Colorado broker can market and sell a property with seller financing but can't negotiate the loan terms or take the loan application.Can my seller carry the financing if they still have a mortgage?
Usually not safely. Most mortgages have a due-on-sale clause, and transferring the deed lets the lender call the loan. The clean option is paying off the existing loan at closing, or a lender-approved assumption.Does the seller get title insurance on a seller-financed sale?
They can and should. The seller can get a lender's policy on their deed of trust, the same way a bank does. The buyer gets an owner's policy. Here's the difference between the two.What happens if the buyer stops paying?
The seller forecloses on the deed of trust, which in Colorado normally goes through the county Public Trustee. It takes months and costs money, which is why a real down payment matters.Can an LLC offer seller financing?
Yes, but only under the three-property exclusion if the buyer is an owner-occupant. That means no balloon payment and a good-faith look at the buyer's ability to repay.Got a seller-financing deal coming together? Call Ben Gosz at Chicago Title of Colorado before the contract is signed. It's much easier to set up the payoff, loan documents, and title policies the right way up front than to fix them the week of closing.