on the property. This is what a traditional bank does. The problem with this is if the buyer ever defaults you have to go through a foreclosure process, and you may not ever receive full value for your property. The smaller the down payment, the riskier taking a mortgage is. This is because there are some hefty costs to foreclose, and the sale is a courthouse steps type sale, and there's no guarantee that you'll have a buyer show up who will bid high enough to pay you off entirely.

The rule of thumb I use for my own clients is 50% down to agree to do a traditional financing structure with a mortgage (here in Missouri it's technically a deed of trust).

The traditional alternative to a mortgage-secured sale is a contract for deed. Basically under a contract for deed, the buyer makes payments, but the seller retains ownership of the property and doesn't deed it over until all payments are made. The typical contract for deed contract will say that if the buyer makes 99 out of 100 payments but misses the 100th payment, the buyer loses out and forfeits the property. Most states have caselaw that says this is unfair, and the buyer gets an equitable interest in the property that increases with every payment they make. So a buyer who defaults with the 100th payment would be entitled to 99% of the value of the property back from the seller.

To avoid this equitable interest issue, when a buyer can't come up with any significant down payment, I generally will structure the contract as a lease with an option to purchase. The only thing conveyed to the buyer is a leasehold interest. They have an exercisable option to purchase, and if they exercise that option, a certain amount of the lease payment is credited towards the purchase price. I typically structure the lease payment at a number equal to the monthly amortization on a traditional note. They get credit for the principal amount that would have been paid in a normal amortization. The down payment is typically small in these cases, and we classify the down payment as an option payment (payment for including the option right to purchase in the lease).

The benefit of this structure is if the buyer defaults, you go through a regular eviction process, and you take back ownership of the property. Unless the buyer absolutely trashes the home, the seller is rarely going to lose using this structure. There is very little risk.

The downside to either alternative to a traditional mortgage is that the title to the property remains in your name. Some level of legal liability risk attaches to holding title. It's harder for a "tenant" to get homeowner's insurance, and you may end up having to purchase insurance for the property, with the buyer reimbursing you each month.

My rule of thumb for any business deal or real estate transaction when representing a seller is that cash in hand is always better than a promise by the buyer to pay you money in the future. You may hypothetically be able to get a higher rate of return in the form of interest on the note than you would from taking cash and investing, but there's also a risk factor that is likely higher that most seller's aren't accounting for. Seller-financed deals are almost universally more risky than bank-backed purchases. This is because people end up doing a seller-financed deal most times because the buyer can't get bank financing. You're usually dealing with a risk pool that is very high risk.