Short answer: when a seller finances the sale of their own home, two federal questions decide which rules apply. First, is the seller a “creditor” under Regulation Z, which depends on the number of home-secured credit sales they made? Second, does the seller fit one of the two seller financer exclusions from the loan originator rules, which set limits on the number of properties and on the loan terms? This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.
Is the seller a “creditor”?
Regulation Z applies to a person who offers or extends credit when the credit is to consumers, is offered or extended regularly, has a finance charge or is payable by written agreement in more than four installments, and is mainly for personal, family or household purposes (12 CFR 1026.1(c)(1), eCFR, text up to date as of October 28, 2026, read October 30, 2026). A “creditor” is a person who regularly extends that credit and to whom the debt is first payable (12 CFR 1026.2(a)(17)(i), eCFR).
A person regularly extends consumer credit only if they extended it more than 25 times, or more than 5 times for credit secured by a dwelling, in the preceding calendar year; if they did not meet that count in the preceding year, the count is applied to the current year. A person who makes more than one high-cost mortgage subject to 12 CFR 1026.32 in any 12-month period, or one or more through a mortgage broker, also regularly extends credit (1026.2(a)(17)(v)). The official comments say that when the count is measured by the current year, the person becomes a creditor for the extensions after the count is met that year (Supplement I, comment 2(a)(17)(i)-4, eCFR).
This example is only for the math, with example counts, not for any seller, and it assumes no high-cost mortgages.
| Item | Seller A | Seller B |
|---|---|---|
| Home-secured consumer credit sales in the preceding calendar year | 3 | 6 |
| More than 5? | No | Yes |
If the seller is a creditor, Regulation Z rules for home loans apply to them, including the ability-to-repay rule, which bars a creditor from making a covered home loan without a reasonable and good faith determination that you can repay it (12 CFR 1026.43(c)(1), eCFR), with the exceptions listed in 1026.43(a). See the mortgage ability-to-repay rule.
The loan originator rules and the seller financer exclusions
A “loan originator” is, in general, a person who for pay or other gain takes an application, offers, arranges, negotiates or otherwise obtains or makes an extension of consumer credit for another person (12 CFR 1026.36(a)(1)(i), eCFR). Those rules cover how originators may be paid and their qualification; see mortgage broker compensation rules. A seller financer that meets the criteria in 1026.36(a)(4) or (a)(5) is not a loan originator (1026.36(a)(1)(i)(D)).
| Test | Three-property exclusion, 1026.36(a)(4) | One-property exclusion, 1026.36(a)(5) |
|---|---|---|
| Who can use it | Any person | A natural person, an estate or a trust |
| Number of sales | Seller financing for three or fewer properties in any 12-month period, each owned by the seller and securing the financing | Seller financing for only one property in any 12-month period, owned by the seller and securing the financing |
| Home building | The seller has not built, or acted as a contractor building, a residence on the property in the ordinary course of business | The same |
| Repayment schedule | Fully amortizing | No negative amortization |
| Ability to repay | The seller determines in good faith that you have a reasonable ability to repay | Not listed as a condition |
| Interest rate | Fixed, or adjustable only after five or more years, with reasonable annual and lifetime limits, set as an index plus a margin, using a widely available index such as U.S. Treasury securities or SOFR | The same |
The safe harbors in the official comments
For the three-property exclusion, the official comments say a seller determines your ability to repay in good faith if they follow the ability-to-repay rule in 1026.43(c), or if they consider evidence of your current or reasonably expected income, such as pay statements, IRS Form W-2s or benefit income, or income from assets. The value of the home securing the financing is not evidence of your ability to repay, and the seller may rely on copies of tax returns you filed (comment 36(a)(4)-1).
For an adjustable rate, under either exclusion, an annual increase of two percentage points or less is reasonable, and a lifetime increase of six percentage points or less is reasonable, with a ceiling no higher than the usury limit that applies to the transaction (comments 36(a)(4)-2 and 36(a)(5)-1).
This example is only for the math, with an example starting rate, not terms for any loan.
| Item | Example |
|---|---|
| Starting rate (fixed for at least five years) | 6% |
| Highest rate after the first adjustment: 6% + 2 points | 8% |
| Highest rate over the life of the loan: 6% + 6 points | 12% |
Contracts for deed
The CFPB says a contract for deed is a purchase on an installment plan in which the seller keeps legal title until you make all the payments, that the buyer pays property taxes, insurance, repairs and maintenance under such a contract, and that a seller might try to evict a buyer quickly after a missed payment or an unpaid balloon payment (CFPB, last reviewed September 13, 2024, read October 30, 2026; this page may be out of date). It suggests asking an expert, such as a housing counselor, before you sign; you can use the CFPB housing counselor search.
If a seller’s financing contract is later sold to a lender or investor, see the FTC holder rule and seller financing for when the new holder answers for the seller. You can submit a complaint at consumerfinance.gov/complaint. For your own deal, ask a lawyer; you can look for legal aid through the Legal Services Corporation.
Questions to ask the seller
- What number of homes did you sell with financing in the past 12 months and in the last calendar year?
- Is the rate fixed? If not, when can it first change, and what are the annual and lifetime caps?
- Does the payment pay off the whole balance by the end, or is there a balloon payment?
- How did you check that I can afford the payments?
- Is there a mortgage or lien on the home now, and how will it be paid off?
- Do I get the deed at closing, or only after the last payment?
- Who pays the property taxes and insurance, and how will I see proof they are paid?
Checklist
- Count the seller’s financed sales: more than 5 home-secured ones in the preceding calendar year makes them a creditor.
- Check the exclusion tests: number of properties, no home building business, loan terms.
- Look for a fixed rate, or caps on an adjustable rate after five or more years.
- Check whether the loan fully amortizes or ends in a balloon payment.
- Talk to a housing counselor or a lawyer before you sign.
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Sources
- eCFR: 12 CFR 1026.1, Authority, purpose, coverage, organization, enforcement, and liability (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.2, Definitions and rules of construction (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.36, Prohibited acts or practices and certain requirements for credit secured by a dwelling (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.43, Minimum standards for transactions secured by a dwelling (Regulation Z), current text up to date as of October 28, 2026
- eCFR: Supplement I to Part 1026, Official Interpretations (Regulation Z), current text up to date as of October 28, 2026
- CFPB: What is a contract for deed? (last reviewed September 13, 2024)
- CFPB: Find a housing counselor
- CFPB: Submit a complaint
- Legal Services Corporation: Find legal aid
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.