Introduction: A Market Reshaped by Interest Rates
The seller financing market in the fourth quarter of 2025 was defined by one overarching theme: the continued impact of high traditional mortgage rates. As the Federal Reserve maintained its tight monetary policy, with conventional 30-year mortgage rates hovering near 7.5%, the demand for alternative financing solutions surged. This created a fertile environment for seller financing, which grew to an estimated market size of over $35 billion in 2025, a 15% increase from the previous year.
This report, based on our internal data at Note Buyers of America and an analysis of public records, provides a comprehensive overview of the key trends, statistics, and drivers that shaped the seller financing market in Q4 2025. We will explore the geographic leaders, the shifting mix of property types, and the outlook for what to expect in 2026.
Key Trend #1: The Widening Gap Between Traditional and Seller-Financed Rates
In Q4 2025, the average interest rate on a new seller-financed note was 9.25%, up from 8.75% in the same period last year. While this is significantly higher than the rates seen during the era of quantitative easing, the spread between traditional and seller-financed rates has actually narrowed. This has made seller financing a more palatable option for buyers who are shocked by the high rates offered by traditional lenders.
| Metric | Q4 2024 | Q4 2025 | Change |
|---|---|---|---|
| Average 30-Year Traditional Rate | 6.5% | 7.5% | +1.0% |
| Average Seller-Financed Rate | 8.75% | 9.25% | +0.5% |
| Spread | 2.25% | 1.75% | -0.5% |
This narrowing spread has been a major driver of market growth, as buyers are more willing to accept a slightly higher rate from a seller in exchange for the flexibility and accessibility that owner financing provides.
Key Trend #2: The Dominance of the Sun Belt
The geographic distribution of seller financing activity continues to be heavily concentrated in the Sun Belt states, which are characterized by strong population growth, pro-business regulatory environments, and diverse economies.
Top 5 States by Seller Financing Market Share (Q4 2025)
- Texas (25.1%): The undisputed leader, driven by its major metropolitan hubs and vast rural land market.
- Florida (9.2%): A perennial powerhouse, fueled by retirees and vacation home buyers.
- Arizona (7.5%): A fast-growing market with strong demand in the Phoenix and Tucson metro areas.
- California (6.8%): Despite its restrictive regulatory environment, the sheer size of the California market keeps it in the top five.
- North Carolina (5.5%): A rising star in the seller financing world, with strong growth in the Charlotte and Raleigh-Durham areas.
These five states alone accounted for over 54% of all seller financing activity in the fourth quarter, making them the primary focus for both note creators and note investors.
Key Trend #3: The Shift in Property Type Mix
As interest rates have risen, we have observed a noticeable shift in the types of properties being financed.
- Decline in High-End Residential: The volume of seller-financed notes on high-end residential properties (those valued over $1 million) has declined by approximately 10% year-over-year. This is likely due to the fact that buyers in this price range are less sensitive to interest rate fluctuations and have more financing options available to them.
- Growth in Mid-Range Residential: The sweet spot of the market in Q4 2025 was owner-occupied, single-family homes in the $250,000 to $500,000 price range. This segment saw a 20% increase in volume as working-class families turned to seller financing as their primary path to homeownership.
- Surge in Raw Land: The financing of raw land saw the largest percentage increase, with volume up nearly 30% from the previous year. As banks have tightened their lending standards for speculative land purchases, sellers have stepped in to fill the void.
Outlook for 2026: What to Expect
As we look ahead to 2026, we anticipate that the trends that defined 2025 will continue and, in some cases, accelerate.
Prediction #1: Continued Market Growth
We predict that the seller financing market will grow by another 10-15% in 2026, reaching a total market size of nearly $40 billion. As long as traditional mortgage rates remain elevated, the demand for alternative financing will remain strong.
Prediction #2: The Rise of AI-Powered Underwriting
We expect to see a significant increase in the adoption of AI-powered underwriting tools by individual note creators. As these tools become more accessible and affordable, they will allow individual sellers to underwrite their buyers with the same level of sophistication as a professional lender, reducing risk and creating higher-quality notes.
Prediction #3: Increased Investor Demand
The high yields and asset-backed security of real estate notes are attracting more and more attention from the broader investment community. We expect to see a significant increase in the amount of institutional capital flowing into the note buying space in 2026, which will increase liquidity and create more opportunities for note sellers.
Conclusion: A Seller's Market
The fourth quarter of 2025 confirmed that we are in a golden age for seller financing. The combination of high traditional mortgage rates and the growing accessibility of professional-grade tools has created a true seller's market. Property owners who are willing to offer financing have a unique opportunity to sell their properties faster, at a higher price, and with a greater degree of control than ever before.
For note holders, the market is equally promising. The increased demand from investors means that your seller-financed note is a more liquid and valuable asset than ever before. At Note Buyers of America, we are more committed than ever to providing a fast, fair, and transparent market for these assets, and we look forward to another year of growth and opportunity in 2026.
Market size and growth estimates are based on an analysis of public record data and internal transaction data from Note Buyers of America, Q4 2025.