Need Help With Your Down Payment? A Seller Carry-Back May Be the Answer

How does a seller carry-back work?

Most buyers pay for a home with two things. One is cash, called the down payment. The other is a loan from a lender, called a mortgage.

In a seller carry-back, the seller also lends you money. The seller "carries back" part of the price. That means the seller agrees to get some of their money later, not all at closing. This loan from the seller is called a second loan. Your main mortgage is the first loan.

You sign a promissory note to the seller. That is a written promise to pay the money back. In Arizona, the note is usually backed by a deed of trust. A deed of trust is a paper recorded with the county. It lets the lender take the home if the loan is not paid. Taking a home this way is called foreclosure.

The seller's deed of trust is in second place. Another word for this is a subordinate loan. It means the first lender gets paid first if the home is ever sold to pay off debts.

A simple example

Say you buy a $400,000 Arizona home. Your lender gives you a first loan for 90% of the price. That is $360,000. You bring 5%, which is $20,000. The seller carries back the last 5%, which is another $20,000.

Without the carry-back, you would need 10% down. That is $40,000. With it, you bring $20,000. The seller gets $380,000 at closing. You pay the seller the other $20,000 over time. Try your own numbers with our Arizona down payment calculator.

How can a carry-back help with your down payment?

• You bring less cash. In the example above, you need $20,000 instead of $40,000.
• You keep more savings. Say you have $45,000 saved. With the carry-back, you could keep $25,000 for moving, repairs or a rainy-day fund. That is before closing costs. Closing costs are the fees you pay to finish buying the home.
• It can help a sale happen. When homes sell slowly, a seller may offer it to draw in buyers.

It is still a loan, so you have to pay it back. Your lender adds the seller loan payment to your other monthly debts. Then the lender compares that total to your income. This is called your debt-to-income ratio, or DTI. A higher DTI can make it harder to get approved.

The seller loan also counts toward your combined loan-to-value, or CLTV. Loan-to-value compares a loan to the home's price or value. Combined means all the loans on the home are added together. Example: A $360,000 first loan plus a $20,000 seller loan is $380,000. On a $400,000 home, your CLTV is 95%.

What do conventional loan rules allow?

A conventional loan is a regular home loan that is not backed by the government. Many follow Fannie Mae's rules, which we cover here. Fannie Mae allows a seller loan behind your first loan. The seller loan must:

• Have a written promise to pay, plus a recorded deed of trust or mortgage.
• Clearly be in second place behind the first loan.
• Be shared with Fannie Mae, the appraiser (the expert who tells the lender what the home is worth) and the mortgage insurance company. That company protects the lender if you stop paying. Most loans with less than 20% down need it.
• Charge a normal market interest rate.
• Have payments that at least cover the interest, so the amount you owe does not grow.
• Not have a balloon payment due in less than five years, unless it is paid off with equal payments. A balloon payment is one big payment at the end that pays off the rest of the loan. Fannie Mae can allow it if the seller loan is small compared to your savings or credit.

Balloon example: Say you owe the seller $20,000. You make small payments for three years. Then the rest is due all at once. That last big payment is a balloon. It is due before five years, so Fannie Mae would not allow it in most cases.

One rule matters a lot for sellers. The seller loan cannot be priced too low. Fannie Mae says if its rate is more than 2% below normal rates for second loans, it counts as a sales concession. A sales concession is money the seller gives toward your costs. Then the lender takes the loan amount off the price. Example: Say the price is $400,000 and the seller lends you $20,000 at a very low rate. The lender would treat the price as $380,000. Learn more in our guide to how much sellers can pay toward buyer costs.

All your loans count toward the combined loan-to-value (CLTV) limit. For a one-family home you live in, with a fixed-rate loan, Fannie Mae allows up to 97%. A fixed-rate loan is one where the interest rate never changes. Going above 95% needs at least one first-time home buyer on the loan. That is someone who has not owned a home in the last three years. Example: On a $400,000 home, 97% is $388,000. So your first loan plus the seller loan cannot be more than $388,000. You would bring at least $12,000.

Some help programs, called Community Seconds, can go up to 105%. These loans come from places like a city, a nonprofit or an employer. But Fannie Mae says a Community Seconds loan cannot come from the seller. So a seller loan follows the normal limit.

Conventional loans allow as little as 3% down for qualified buyers. New to buying? Read our Arizona first-time home buyer guide. See our Arizona conventional loan limits and rules page for more.

What do FHA rules allow?

Federal Housing Administration (FHA) loans are backed by the government. They have easier credit rules. They follow the Department of Housing and Urban Development (HUD) Handbook 4000.1. The handbook sorts second loans by who makes them. Loans from family, the government and some nonprofits get looser rules. HUD doesn't list sellers by name. A seller falls under its catch-all group called private individuals and other organizations.

For that group, the handbook says the Federal Housing Administration will insure the first loan when:

• You tell the lender about the second loan when you apply.
• No costs of the second loan are added to the first loan.
• The second loan payment counts in your total house payment.
• You get no cash back. The one exception is getting back your earnest money or costs you paid early. Earnest money is the good-faith deposit you pay when the seller accepts your offer.
• The second loan does not pay your minimum down payment.
• Both loans together stay within the program's loan-to-value limit and the national loan limits.
• There is no balloon payment within 10 years.
• Payments are made monthly, and they are the same amount each time.
• There is no fee for paying off early after you give 30 days' notice.

Example: Say you buy a $200,000 home with a Federal Housing Administration (FHA) loan. The usual minimum down payment is 3.5%, which is $7,000. That $7,000 must be your own money or other allowed money, like a gift. The seller loan cannot pay it.

On an FHA loan, a seller loan can't lower the cash you bring. Both loans together can be no more than 96.5% of the price. Example: on a $400,000 home, the FHA loan might be $346,000 and the seller loan $40,000, but you still bring $14,000 down plus closing costs. Also, many Federal Housing Administration lenders don't allow seller second loans at all.

Learn more about Federal Housing Administration loans on our FHA home loans in Arizona page. Or compare the two loan types with our conventional vs FHA calculator.

What do VA rules allow?

Department of Veterans Affairs (VA) loans are for veterans and service members. The VA Lenders Handbook allows a second loan at the same time as a VA loan. The main rule is simple. The veteran must not end up much worse off than if VA backed the whole amount. The handbook also says:

• The lender must write down who is lending, how much, and how it will be paid back. The veteran must agree to it.
• The second loan must be in second place behind the first loan.
• It can pay for closing costs. It can also pay a down payment your lender asks for. It cannot pay any part of the price that is above the value Veterans Affairs set for the home. You must pay that gap with your own cash.
• Both loans together cannot be more than the value Veterans Affairs set for the home after its appraisal.
• The veteran gets no cash back, except money the veteran already paid into the deal.
• The veteran must qualify with the second loan payment counted as a monthly debt.
• The rate can be higher than the first loan's rate. It cannot be above what is normal for second loans.
• The second loan cannot limit the veteran's right to sell the home more than the first loan does.
• There should be a fair grace period before a late fee or foreclosure starts. A grace period is extra time to pay after a due date before any penalty starts.
• Your lender has to approve the seller loan. Many lenders do not allow seller loans on VA loans, so ask early.

Example: Say a veteran buys a $400,000 home, and VA's appraisal also says $400,000. The veteran puts down $20,000 and gets a $380,000 VA loan. The seller carries back $8,000 to cover closing costs. Both loans total $388,000, which is under VA's value. That can work if the lender approves it, the veteran qualifies with both payments, and no cash goes back to the veteran.

Learn more in our Arizona guide to Department of Veterans Affairs (VA) loans.

What are the risks?

Example: Say the buyer stops paying and the home sells in foreclosure for $350,000. The buyer owed $360,000 on the first loan and $20,000 to the seller. The first lender is paid first. In this case, nothing is left for the seller.

Seller carry-back vs. seller concessions

These two sound alike, but they are very different.

• Seller concessions are money the seller pays toward your closing costs. You do not pay it back. Each loan type has a limit on how much a seller can pay.
• A seller carry-back is a loan from the seller. You pay it back over time.

Example: Say a seller gives you $10,000 toward closing costs. That is a concession, and you never repay it. Now say the seller lends you $10,000 instead. That is a carry-back, and you must repay all $10,000.

See how much a seller can pay in our guide, seller concessions to buyers: how much? Our guide to Arizona mortgage closing costs explains each fee. To price out all your costs, use our Home Purchase Closing Cost Calculator. As of October 2026, it estimates purchase closing costs of about $3,600 to $4,500 for a median-priced home.

What Arizona buyers and sellers should know

Deeds of trust

In Arizona, home loans are usually backed by a deed of trust. A seller carry-back is often set up the same way. The seller's deed of trust is recorded behind the first one. Your title company and escrow company can help record it. A title company checks who owns the home and that no one else has a claim on it. Escrow is the neutral company that handles the money and papers at closing.

State loan originator licensing

A loan originator is a person who helps people get loans for pay. Arizona's licensing law for them is A.R.S. § 6-991.01. It does not apply to a person who sells a home and takes back a mortgage or deed of trust for the price. This is a state rule only.

Federal seller financing rules

Federal rules from the Consumer Financial Protection Bureau also apply. Under a rule called Regulation Z, a seller is not treated as a loan originator if they meet one of two sets of terms:

• Three homes or fewer in 12 months. The seller did not build the home as a business. The loan must be fully paid off with regular payments. The seller must believe in good faith that you can pay. The rate must be fixed, or not change for at least five years, with fair limits.
• One home in 12 months. This is only for a person, an estate or a trust. An estate is what a person leaves behind after they die. A trust is a legal setup that holds property for someone. The seller did not build the home as a business. The amount owed cannot grow over time. The rate must be fixed, or not change for at least five years, with fair limits.

Example: Say a retired couple sells the one home they own and carries back $20,000. That is one home in 12 months. They may fit the one-home terms if the loan meets those rules. These rules can be tricky. Sellers should talk with an Arizona real estate attorney first.

Loan size

As of October 2026, the conforming loan limit for a one-family home in Arizona is $832,750. That is the largest regular loan Fannie Mae and Freddie Mac will buy. A carry-back can help keep the first loan under that limit. Example: Say you buy a $900,000 home. You put $45,000 down, and the seller carries back $45,000. Your first loan is $810,000, which is under the limit. The combined total still has to fit the loan program.

Plan your purchase with our calculators

Related reading and loan options

Seller carry-back FAQs

Sources

1. Fannie Mae Selling Guide B2-1.2-04, Subordinate Financing
2. Fannie Mae Selling Guide B5-5.1-02, Community Seconds Loan Eligibility
3. Fannie Mae Eligibility Matrix
4. HUD Single Family Housing Policy Handbook 4000.1, Update 18, II.A.4.d.iii(J)(4) Secondary Financing from Private Individuals and Other Organizations; 3.5% minimum required investment; 96.5% maximum purchase loan-to-value
5. VA Lenders Handbook (M26-7), Chapter 9, Topic 5: Secondary Borrowing (KnowVA)
6. Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.36(a)(4) and (a)(5)
7. Consumer Financial Protection Bureau, Loan Originator Rule compliance guide
8. Arizona Revised Statutes § 6-991.01, Exemptions

Agency rules change from time to time. This article reflects the sources above as of October 2026.