Seller Financing in Texas: Rules, Costs and Protections

Seller financing — sometimes called owner financing — lets a Texas home seller act as the lender, carrying some or all of the purchase price instead of requiring the buyer to get a bank mortgage. It can help buyers who don’t qualify for conventional financing and help sellers close faster or earn interest income. But Texas regulates these deals more closely than most states, largely because of past abuses involving informal “contracts for deed.” This guide summarizes the rules, typical costs, and protections on both sides. It is educational information, not legal, tax or financial advice — always confirm current requirements with a licensed Texas attorney before you sign anything.

Do you need a licensed loan originator?

Federal and Texas law both regulate who can originate a residential mortgage loan. Under the Texas SAFE Act framework, a person acting as a residential mortgage loan originator (RMLO) generally needs a license. However, Texas provides a narrow carve-out for individual sellers: an owner of residential real estate who makes 3 or fewer owner-financed residential mortgage loans in any rolling 12-month period is generally exempt from RMLO licensing under Finance Code §180.003(a)(5). A similar three-loan exemption applies to wraparound mortgage loans under Finance Code §159.003. Two or more owners can be treated as a single owner for counting purposes, so you can’t split transactions across affiliated entities to dodge the limit.

If you exceed that threshold, sell property you didn’t occupy as your own home, or are otherwise not covered by an exemption, you’ll typically need to involve a licensed RMLO in structuring and documenting the loan. Because eligibility depends on specific facts (occupancy, family relationships, loan terms, and how many loans you’ve already made this year), confirm your exemption status with an attorney or the Texas Department of Savings and Mortgage Lending before relying on it.

Contracts for deed vs. a note and deed of trust

There are two common ways to structure a seller-financed sale in Texas, and the choice matters a great deal legally:

1. Warranty deed + promissory note + deed of trust. The seller transfers title to the buyer immediately at closing, and the buyer’s promise to pay is secured by a deed of trust (Texas’s equivalent of a mortgage) recorded against the property. If the buyer defaults, the seller forecloses like any other lienholder.
2. Executory contract (contract for deed / land contract). The seller keeps legal title until the buyer finishes paying, while the buyer occupies and pays for the home over time. Texas Property Code Chapter 5, Subchapter D heavily regulates these contracts — requiring specific written disclosures about the property’s condition and financing terms, prohibiting certain contract terms, mandating annual accounting statements to the buyer, and in many cases requiring the seller to record the contract and eventually convert it to a recorded deed once the buyer has paid enough. Sellers who don’t comply expose themselves to Deceptive Trade Practices Act claims, statutory damages, and broad buyer rescission rights.

Because of the compliance burden and litigation risk built into Chapter 5, most real estate attorneys in Texas now steer sellers toward the deed-plus-note structure for standard home sales and reserve contracts for deed for narrower situations.

Usury: how much interest can you charge?

Texas usury law is scattered across the Texas Constitution and the Finance Code rather than set out in one clean number. As a general baseline, the Texas Constitution (Article XVI, §11) treats an interest rate above 10% per year as usurious unless another statute authorizes a higher rate for that type of transaction, and if a contract doesn’t specify a rate at all, the default legal rate is 6% per year. Certain categories of loans (larger commercial transactions, certain consumer credit types) have their own statutory ceilings under the Finance Code. Charging an unlawfully high rate can trigger penalties, so any interest rate on a seller-financed note should be checked against current law before the note is signed.

Foreclosure: type and typical timeline

If the sale used a note secured by a deed of trust, Texas allows non-judicial foreclosure — a “power of sale” process under Property Code §51.002 that lets the lienholder sell the property at auction without first suing the borrower in court. Judicial foreclosure is required for certain loan types (notably home equity loans and some HOA assessment liens), but a standard purchase-money seller-financing lien is typically eligible for the faster non-judicial route. In practice, the process involves a default notice with a cure period, followed by a posted notice of sale, with the actual foreclosure sale conducted on the first Tuesday of a month at the county courthouse. Because required notice periods and cure rights apply, and specific timelines can vary by the loan documents and any federal servicing rules that apply, sellers acting as the lender should have a real estate attorney handle the notices and sale.

If the sale was structured as an executory contract for deed instead, Chapter 5’s buyer-protection provisions (rather than a standard foreclosure) generally control what happens on default, and the process can look quite different.

Closing customs: title company, not required attorney

Texas real estate closings are customarily handled through a title company, which provides title insurance, holds escrow, and records the deed and lien documents. Texas is not an “attorney state” — a lawyer’s presence at closing isn’t legally mandated — but because seller financing requires carefully drafted notes, deeds, and deeds of trust (or Chapter 5 compliance for a contract for deed), it’s common and advisable to have a real estate attorney prepare or review the paperwork even though the title company runs the closing itself.

Homestead protections

Texas has some of the strongest homestead protections in the country, shielding a person’s home from forced sale by most general creditors. Importantly for seller financing, purchase-money liens are a recognized exception to homestead protection under Article XVI, §50 of the Texas Constitution — meaning a properly documented seller-financing lien can still be foreclosed even though the property is the buyer’s homestead. Other exceptions include property tax liens, home equity loans, and mechanic’s liens for work on the home.

Key disclosures to keep in mind

Beyond Chapter 5’s contract-for-deed disclosures, Texas sellers should be prepared to provide a standard Seller’s Disclosure Notice under Property Code §5.008 (with limited exemptions), and any financing documents should clearly state the interest rate, payment schedule, balloon payment terms (if any), and what happens on default. Buyers should independently confirm there are no existing liens ahead of the seller’s position and should get an owner’s title policy.

Selling or buying directly in Texas

Every home on Clavesta is for sale directly, to buyers paying cash or with their own bank loan; seller financing and assumable loans are extra options when they fit. See your options to sell in Texas, or estimate typical closing costs in Texas and the agent commission you’d keep.

Bottom line

Seller financing remains a legitimate, useful tool in Texas, but the state’s history with abusive contracts for deed means the rules are more detailed than in many states. Structuring the deal as a deed with a note and deed of trust, confirming your RMLO exemption applies, setting a lawful interest rate, and using a title company alongside an experienced real estate attorney will keep both sides protected.

Laws change, and how they apply depends on your specific facts. This guide is educational information, not legal, tax or financial advice — consult a licensed Texas real estate attorney before entering a seller-financing agreement.

— Clavesta Editorial Team