Lever 1 — Down payment
Sellers anchor on a down-payment number first. If their ask is uncomfortable, do not haggle the number directly — instead offer a tradeoff.
Script: 'I can do 10% down instead of 15% if I bring the rate up to 8.5% from 8%. You earn an extra ~$3,000 in interest over the first five years and I keep enough cash to handle the inspection items.'
Lever 2 — Interest rate
Most owner-finance sellers price their rate against what they could earn elsewhere — a CD, a bond fund, another rental. Find out what number they have in their head and you find the floor.
Script: 'What yield were you hoping to earn on this note? I want to make sure my offer beats your next-best alternative.' This single question often reveals their target rate before you have to guess.
Lever 3 — Balloon length
A longer balloon is enormously valuable to a buyer — every extra year is another year of cushion to refinance. Sellers resist long balloons because their capital is tied up.
Script: 'A 7-year balloon instead of 5 lets me refinance from a position of strength. In exchange I'll take the rate up 25 basis points and accept a step-up clause if I don't refi by year 5.'
Lever 4 — Prepayment and assumability
Ask for no prepayment penalty at all. If the seller insists, cap it: '2% in year 1, 1% in year 2, none after.' Also ask whether the loan is assumable — assumability is rare but extremely valuable if rates drop and you want to sell to another owner-finance buyer.
What never to negotiate away
- A licensed title company or attorney closing — never close direct with the seller.
- Owner's and lender's title insurance.
- A recorded deed of trust or mortgage (not a contract-for-deed unless you understand the tradeoffs).
- A signed promissory note with all material terms.
- A loan servicer to collect payments and provide year-end 1098s.