Short answer
To structure owner financing so you're protected: require a substantial documented down payment, charge interest that reflects your risk, use an attorney-drafted promissory note plus a recorded mortgage or deed of trust, include clear default terms and an acceleration clause, require the buyer to keep taxes and insurance current with you named as lienholder, and close through a licensed title company. These give you a real, enforceable path to recover the property if the buyer stops paying.
Why structure is everything
In owner financing, you don't get the bank's protections automatically — you have to build them into the deal. The structure is what stands between you and disaster if the buyer defaults. A well-structured deal means a missed payment is a manageable problem; a poorly structured one means a missed payment is the start of losing your property and your money. Below are the structural protections that matter most. (Your attorney drafts the actual documents — this is what to insist on.)
The 7 structural protections every seller needs
A substantial, documented down payment
Your single most important protection. A down payment of 10–20% or more, from the buyer's own verified funds, means they have real money to lose by walking away — so they won't. It also cushions your loss if you ever foreclose. Never let the buyer borrow or "wrap" the down payment into the loan; that erases the protection entirely.
An interest rate that reflects your risk
You're taking on risk a bank normally would, so your rate should compensate you — typically above prevailing mortgage rates. Just be sure it complies with your state's usury limits and the IRS minimum-interest rules, which your attorney and CPA confirm.
A properly drafted promissory note
The note is the buyer's binding promise to pay. It must clearly state the principal, interest rate, payment amount and schedule, term, any balloon, late fees, grace period, and default consequences. Vague terms are unenforceable terms. Never use a generic online template — have a real estate attorney draft it.
A recorded mortgage or deed of trust
The note alone isn't enough — it must be secured by a mortgage or deed of trust (depending on your state) that's recorded so your lien is public. This is what gives you the legal right to foreclose and recover the property if the buyer defaults. An unrecorded interest is a gift to a dishonest buyer.
An acceleration clause
This clause makes the entire remaining balance due immediately if the buyer defaults and doesn't cure it within the grace period. Instead of chasing individual missed payments, you have one strong, enforceable remedy — a major advantage if you ever need to foreclose.
Taxes & insurance locked down
Require the buyer to keep property taxes and insurance current, with proof each year — or collect them in escrow through a servicer. Unpaid property taxes can create a lien that jumps ahead of yours, threatening your entire position. Have yourself named as lienholder on the insurance so you're protected if the property is damaged.
A title-company closing
Close through a licensed title company that verifies title, handles escrow, and ensures your lien is properly recorded. This confirms everything is clean and gives you an unbiased paper trail — critical evidence if a dispute ever arises.