Six Steps to Close a Seller-Financed Deal in Texas, With the Number That Matters at Each Stage

Seller financing isn’t exotic. It’s a promissory note, a deed of trust, and two people who agreed on price without a bank dictating the terms. I’ve closed these on burned-out rentals, inherited duplexes, and pre-foreclosure houses where a conventional lender wouldn’t touch the property. The steps are repeatable. Most agents just never learned them because their brokers didn’t either.

Step 1: Confirm 40% Equity Before the Appointment

Seller financing without equity is a dead end. If the seller owes $130,000 on a $150,000 house, there is no deal structure that makes this work. You need room between the payoff and the purchase price to build terms that make sense for both sides.

In practice: target properties where the owner has held for 10-plus years, paid cash, or inherited with no mortgage. Texas county appraisal district records are public and free at most CAD websites. Five minutes of research tells you whether the equity exists before you leave your driveway.

The mistake that blows this step: over-screening appointments. I drove to a lead once that sounded uncertain over the phone, the kind of call most agents talk themselves out of. The seller owned two units in the same complex. Both sold. Pick up the phone, set the appointment, go.

Step 2: Run ARV and Your Maximum Offer Before You Sit Down

Walk in with a number. You need three inputs: an after-repair value from 3 closed comps (not automated valuations), a repair estimate within $10,000, and a maximum offer based on the math.

For buy-and-hold: ARV × 0.75 minus repairs equals your ceiling. On a $200,000 ARV property needing $20,000 in work, that’s $130,000. That is the number you work backward from when you structure the note.

The mistake that blows this step: going in blank and asking what the seller wants. You anchor the conversation or someone else will.

Step 3: Know the Texas Three-Property Rule Before You Structure Anything

Under Dodd-Frank, a seller financing a residential 1-4 family property can avoid registering as a mortgage loan originator under a specific exemption: they cannot finance more than 3 properties per year, must meet documentation requirements around the buyer’s ability to repay, and the note must carry a fixed rate or, if adjustable, cannot adjust in the first five years.

One of those three annual deals carries an additional restriction: the seller cannot make that loan to a buyer who lacks the ability to repay by conventional standards.

Before you structure anything, ask the seller directly: “Have you seller-financed any other properties this year?” If the answer is two, you may be working with the restricted transaction in the group. That requires an attorney, not a workaround.

The mistake that blows this step: assuming seller finance is always unregulated. It isn’t. Violating Dodd-Frank in a residential transaction can expose the seller to regulatory action, and you put that deal together.

Step 4: Build the Note Around Three Numbers

Every seller-finance note negotiates down to three figures: purchase price, interest rate, and balloon date.

Interest rates on seller-carried notes in Texas currently run 7-10%. Sellers accept below-market rates because spreading the sale over the term of the note also spreads the capital gains tax hit. That’s a real benefit worth spelling out when you’re negotiating rate, not something to bury.

A concrete example: $130,000 purchase price, 8% interest, 30-year amortization, 5-year balloon. Monthly payment: approximately $954. Balance due at month 60: approximately $124,600. The buyer refinances conventionally when they qualify; the seller has received five years of income and a clean payoff.

The mistake that blows this step: leaving the balloon unaddressed. Buyers will sign anything that lowers the monthly payment today. Explain month 60 in plain language before signatures happen, not after.

Step 5: Hire a Real Estate Attorney to Draft the Documents

Title companies close transactions. They don’t draft custom promissory notes or deeds of trust. A real estate attorney does, and in Texas, a standard seller-finance document package (note, deed of trust, required addenda) runs $750-1,500 for a straightforward deal.

Texas Property Code Chapter 5 governs executory contracts (contracts for deed, land contracts) separately from traditional seller-finance transactions secured by a deed of trust. The two structures carry different statutory disclosure requirements. Know which one you’re using before you call the attorney, because they are not the same animal.

The mistake that blows this step: using a generic form downloaded from the internet. A Texas court will not enforce a defective note. The $1,000 attorney fee protects a six-figure transaction. There is no version of this where it’s optional.

Step 6: Close With a Title Company That Has Done This in the Last 90 Days

Call before you’re under contract. Ask directly: “Have you closed seller-financed transactions recently?” If they hesitate, keep calling.

At closing, the title company runs a full title search ($200-400 in most Texas markets), issues a title commitment, and records the deed of trust with the county clerk ($25-75 per document depending on county). Total closing costs on a seller-financed deal: $1,500-3,500, versus $6,000-12,000 on a conventional purchase at a similar price point. That gap is real negotiating room.

After closing, route the monthly payments through a Texas loan servicer. First National Acceptance Company and MLG Servicing both operate here. Cost: $25-35 per month. This creates a documented payment history if the buyer refinances conventionally down the road, and it keeps you out of the collections business if a payment is late.

The mistake that blows this step: collecting payments yourself. One missed payment becomes a dispute about who said what. A third-party servicer is the neutral record that protects everyone, including you.