Buyer Financing Options FSBO Sellers Should Know About

14 June 2025

Selling your home "For Sale By Owner" (FSBO) can be an exciting yet challenging journey. One of the biggest hurdles? Finding a buyer who can secure the right financing. Not every buyer will have cash in hand, and as an FSBO seller, understanding the various financing options available can help you attract more potential buyers and close deals faster.

So, what are the most common financing options buyers use? Let's break them down.

1. Conventional Loans

What Is a Conventional Loan?

A conventional loan is a mortgage that isn’t backed by the government. These loans typically have stricter credit requirements and down payment expectations but offer competitive interest rates.

Key Features of Conventional Loans:

- Typically requires a credit score of 620+
- Down payments generally range from 3%–20%
- Private Mortgage Insurance (PMI) is required if the down payment is less than 20%
- Loan limits set by Fannie Mae and Freddie Mac

Why It Matters for FSBO Sellers

Buyers who qualify for a conventional loan are usually financially strong, making the sale process smoother. However, these buyers may request seller concessions (such as covering part of closing costs), so be prepared for some negotiations.

2. FHA Loans (Federal Housing Administration Loans)

What Is an FHA Loan?

FHA loans are backed by the Federal Housing Administration, designed for buyers with lower credit scores or smaller down payments.

Key Features of FHA Loans:

- Requires a credit score of 580+ (though some lenders allow 500 with a higher down payment)
- Minimum down payment is 3.5%
- Mortgage insurance is mandatory for the life of the loan
- More lenient on debt-to-income (DTI) ratios

Why It Matters for FSBO Sellers

FHA loans make homeownership accessible to more buyers, increasing your buyer pool. However, FHA appraisals and inspections are strict, which means your home must meet certain property standards. If your home has issues like peeling paint, roof damage, or outdated electrical systems, you might need to make repairs before the loan gets approved.

3. VA Loans (Veterans Affairs Loans)

What Is a VA Loan?

VA loans are available exclusively to eligible veterans, active-duty military, and their families. These loans are backed by the U.S. Department of Veterans Affairs and come with excellent benefits.

Key Features of VA Loans:

- No down payment required
- No private mortgage insurance (PMI)
- More lenient credit and income requirements
- Lower interest rates compared to conventional loans

Why It Matters for FSBO Sellers

VA buyers don’t need a down payment, which can speed up the sale. However, VA appraisals are rigorous, meaning your home needs to meet certain condition requirements before the loan is approved. Sellers may also need to cover some closing costs that aren’t allowed to be paid by the buyer.

4. USDA Loans (United States Department of Agriculture Loans)

What Is a USDA Loan?

A USDA loan is a zero-down payment mortgage option for buyers purchasing homes in eligible rural areas. These loans are backed by the U.S. Department of Agriculture.

Key Features of USDA Loans:

- No down payment required
- Requires a credit score of 640+ (though some lenders allow lower)
- Lower mortgage insurance costs compared to FHA loans
- Household income must be within eligibility limits

Why It Matters for FSBO Sellers

If your home is in a rural or suburban area, USDA loans can attract buyers who may not have enough savings for a down payment. However, since these loans are income-restricted, not all potential buyers will qualify.

5. Seller Financing (Owner Financing)

What Is Seller Financing?

In seller financing, you act as the lender, allowing the buyer to make payments directly to you instead of a bank.

Key Features of Seller Financing:

- No bank involvement
- Buyers can negotiate more flexible terms (down payment, interest rate, and repayment schedule)
- Faster closing process since there’s no mortgage approval delay
- The seller retains a legal interest in the property until the loan is fully paid

Why It Matters for FSBO Sellers

Seller financing can expand your buyer pool by accommodating those who can’t secure a traditional mortgage. However, it’s essential to vet potential buyers carefully to ensure they can make payments. Consulting with a real estate attorney is also recommended to create a legally binding agreement.

6. Lease-to-Own (Rent-to-Own) Agreements

What Is a Lease-to-Own Agreement?

In a lease-to-own arrangement, a buyer rents the home for a certain period, with the option to purchase it later at a predetermined price.

Key Features of Lease-to-Own Agreements:

- Buyer pays monthly rent (often at a slightly higher rate)
- A portion of rent payments may go toward the home’s purchase price
- Buyer typically pays a non-refundable option fee
- The agreement can last 1–3 years before purchase is required

Why It Matters for FSBO Sellers

This option attracts buyers who may not yet qualify for a mortgage but intend to purchase in the future. However, if the buyer decides not to buy, you’ll have to find a new buyer later.

7. Assumable Mortgages

What Is an Assumable Mortgage?

An assumable mortgage allows a buyer to take over the seller's existing home loan and keep its terms, such as the interest rate and remaining balance.

Key Features of Assumable Mortgages:

- Buyers avoid higher interest rates if the seller's loan has a lower rate
- The buyer must qualify with the current lender
- FHA, VA, and some conventional loans are assumable

Why It Matters for FSBO Sellers

If your existing mortgage has a low interest rate, promoting it as assumable can attract more buyers in a market with rising rates. However, be aware that some lenders require the original borrower (you) to remain liable for the loan if the new buyer defaults—unless a formal release is granted.

Tips for FSBO Sellers When Dealing with Buyer Financing

- Understand Your Buyer’s Loan Type – Ask buyers what financing option they're using so you can anticipate any potential hurdles.
- Be Ready for Appraisals and Inspections – Certain loans like FHA and VA have strict requirements that may require repairs before final approval.
- Offer Seller Concessions If Needed – Some buyers may request help with closing costs, which could help seal the deal faster.
- Consider Pre-Approved Buyers – Buyers who already have a mortgage pre-approval are more likely to close without financing delays.

Final Thoughts

Understanding buyer financing options can make a huge difference when selling your home FSBO. The more financing options you’re familiar with, the better prepared you’ll be to navigate buyer negotiations, ensure a smooth closing, and ultimately sell your home faster. Whether buyers are using conventional loans, government-backed options, or alternative methods like seller financing, being informed helps you stay ahead in the selling process.