How Much Down Payment Should a Utah Seller Require?
How a Utah seller can size the down payment on a seller-financed sale from foreclosure time, costs, and the equity cushion, with a worked $400,000 example.
Informational onlyThis page is general information about Utah law, not legal advice for your situation. Reading it doesn't create an attorney-client relationship. Read the disclaimer.
The down payment on a seller-financed sale is a negotiated term, so you pick the number. Size it to your risk. The down payment should cover the payments you would miss, the cost of a foreclosure, and a dip in value before you get the house back. On a $400,000 sale, that points most sellers well above 5% down.
How much down payment should you require as a Utah seller?
Require enough that you could absorb a default without losing money on the house. That number comes from three pieces: months of missed payments, foreclosure costs, and a possible drop in value.
There is no standard figure. The down payment is a deal term. You and the buyer negotiate it, and it goes into the purchase contract and the state Seller Financing Addendum (Seller Financing Addendum (state-approved form, Oct. 20, 2021)). The rate is negotiated too. Parties to a lawful contract may agree on any rate of interest (Utah Code § 15-1-1).
So the real question is different. How much would you lose if this buyer stopped paying in month six? Work that out first. Then ask for at least that much down.
Think about it the way a lender does. A lender does not ask whether the buyer seems nice. It asks what happens when things go wrong. You are about to be the lender. The down payment is your first and cheapest protection.
Why does the down payment matter so much if the buyer defaults?
The down payment is the equity between what the buyer owes you and what the house is worth. If the buyer defaults, that equity absorbs your losses. Without it, the losses land on you.
Here is why the losses add up. A Utah trust-deed foreclosure runs on a fixed statutory clock. You cannot speed it up.
If the home is owner-occupied, you first send a written notice giving at least 30 days to cure (Utah Code § 57-1-24.3). Then the trustee records a notice of default. At least three months must pass before a notice of sale (Utah Code § 57-1-24). The notice of sale is then published once a week for three weeks, and posted at least 20 days before the sale (Utah Code § 57-1-25).
Add those windows up. The sale comes at least about four months after the notice of default. Add the 30-day letter and the month or two before you act, and six months without a payment is a realistic planning number. You can map your own dates with the foreclosure timeline tool.
During those months, you are not collecting. You may still be paying taxes and insurance to protect the house. You are also paying the trustee and, often, an attorney. Only a Utah attorney or a licensed Utah title company can run the trustee's sale (Utah Code § 57-1-21).
The buyer can also stop the process. Within three months of the notice of default, the buyer may reinstate by paying what is past due, plus costs and fees actually incurred (Utah Code § 57-1-31). That is fair to the buyer. It also means some defaults drag on and restart.
There is one piece of good news for sellers. A Utah trustee's deed conveys title without right of redemption (Utah Code § 57-1-28). Once the sale is done, the buyer cannot buy the house back later.
But a deficiency claim is limited. If the house is worth less than the debt, you have three months after the sale to sue for the shortfall. The judgment is capped by the property's fair market value at the sale date, not the auction bid (Utah Code § 57-1-32). And a buyer who could not make payments may be hard to collect from. The equity cushion is often the only part of your protection that is actually in your hands.
For the full default process, read what happens when a seller-financed buyer stops paying.
What does 5%, 10%, or 20% down look like on a $400,000 sale?
On a $400,000 sale, 5% down leaves you a $380,000 note and a $20,000 cushion. At 20% down, the note is $320,000 and the cushion is $80,000. The difference shows up the moment anything goes wrong.
The table assumes a 7% rate and 30-year amortization. Those are example terms, not a recommendation. Run your own numbers in the seller-carry calculator.
| Down payment | Cash at closing | Note amount | Monthly payment (7%, 30 yrs) | Equity cushion | Cushion if value drops 5% | Months of payments the cushion covers |
|---|---|---|---|---|---|---|
| 5% | $20,000 | $380,000 | $2,528 | $20,000 | $0 | About 8 |
| 10% | $40,000 | $360,000 | $2,395 | $40,000 | $20,000 | About 16 |
| 20% | $80,000 | $320,000 | $2,129 | $80,000 | $60,000 | About 37 |
Read the table against the foreclosure clock. Six missed payments on the 5% deal is about $15,168. That alone eats most of the $20,000 cushion. Then add trustee fees, attorney fees, and any repairs.
Now add a small market dip. A 5% drop on a $400,000 house is $20,000. At 5% down, the cushion is gone before the first missed payment is counted.
At 20% down, the math looks different. Six missed payments on the $320,000 note is about $12,774. The cushion still has room for costs and a price drop.
This is why 5% down is a thin margin for a private seller. A bank spreads risk across thousands of loans. You have one buyer and one house.
How do you screen the buyer beyond the down payment?
Collect the buyer's financial information in writing, check it, and decide before you sign. A large down payment from a buyer with no income still ends in default.
Utah has a state-approved Buyer Financial Information Sheet, dated January 1, 1999 (Buyer Financial Information Sheet (Jan. 1, 1999)). It is a standard way to gather the buyer's financial details for a seller who is carrying the loan. Your agent can provide it.
Use it as a starting point, not an ending point. What typically happens in a careful seller-carry:
- The buyer completes the financial information sheet.
- The buyer authorizes a credit report.
- The buyer provides pay stubs, tax returns, or bank statements.
- You confirm the down payment funds are the buyer's own, not borrowed.
- You ask why the buyer is not using a bank loan, and listen to the answer.
The last question matters. Some buyers are self-employed with uneven income. Some are rebuilding after a medical bill. Those can be good buyers. Others simply cannot afford the payment. The answer helps you set the down payment. A buyer with a thin file and steady income may still be fine at 15% down. A buyer with a recent default may need more.
A larger down payment is also a screening tool on its own. A buyer who has saved $60,000 has shown discipline. A buyer who wants in with $5,000 is telling you something too.
Can the seller finance the down payment too?
You can, but it usually defeats the purpose. A down payment protects you because it is the buyer's money at risk. If you lend the buyer the down payment, the buyer has little or nothing at stake.
Here is what that looks like in practice. The buyer offers 10% down on $400,000. But the $40,000 comes from a second note back to you. On paper, you have a $360,000 first note and a $40,000 second note. In reality, you financed 100% of the price. Your cushion is zero.
Sellers sometimes agree to a split. For example, the buyer pays $30,000 in cash, and you carry $10,000 as a short second note. That keeps real money in the deal. It also adds a second set of payments the buyer has to make.
If a bank is financing part of the price, check early. Lenders commonly have their own rules about seller seconds and where the buyer's funds come from. A structure the bank will not accept can end the deal late. What is allowed depends on the lender's program, so confirm before you agree.
The honest test is simple. After closing, how much of the buyer's own money is in this house? If the answer is "almost none," price the risk accordingly.
What else protects you besides a bigger down payment?
The down payment is one layer. The documents, the servicing, and the buyer's insurance are the others. A good down payment with weak paperwork still leaves you exposed.
What typically helps:
- A recorded trust deed. It secures the note against the house and gives you the nonjudicial foreclosure process above.
- A third-party servicer. It collects payments, keeps the history, and tracks taxes and insurance. See how third-party note servicing works.
- Tax and insurance proof. Ask for proof each year that property taxes are paid and the house is insured.
- A realistic rate and term. A payment the buyer can actually carry lowers the chance of default. See what interest rate to charge.
- A lender's title policy. It protects your lien position if a title problem surfaces.
The complete guide to Utah seller financing walks through each document. If you want an attorney to draft the note and trust deed, the services page lists what the $750 covers.
"Legally allowed to" and "actually goes well" aren't always the same thing. Zero down is legal. Whether it goes well depends on the buyer, the market, and how long a default takes to unwind.
What Greg would tell you
Before you agree to a down payment, run the default math on your own deal. Six months of missed payments, trustee and attorney costs, and a 5% dip in value is a fair stress test. If the down payment doesn't cover that, either ask for more or go in knowing the loss would be yours.
Frequently asked questions
Is there a minimum down payment for seller financing in Utah?
There is no standard minimum for a seller-financed sale. The seller and buyer negotiate it and write it into the purchase contract and the Seller Financing Addendum. What matters is whether the amount covers your realistic loss if the buyer stops paying.
Can a seller accept zero down on a seller-financed sale?
Yes, a seller can agree to zero down, but it leaves no equity cushion. If the buyer defaults early, missed payments and foreclosure costs come out of your pocket. A small price drop can leave the note larger than the house is worth.
How long does it take a Utah seller to foreclose on a trust deed?
A nonjudicial Utah trust-deed foreclosure takes at least about four months from the notice of default. Three months must pass after the notice of default is recorded before a notice of sale, and the sale notice runs for weeks after that. Owner-occupied homes add a 30-day notice before the notice of default.
Can the seller finance the buyer's down payment?
A seller can, but it usually defeats the purpose of a down payment. A second note for the down payment means the buyer has little or no money in the house. If a bank loan is part of the deal, the lender may also restrict seller seconds.
What should I ask a buyer for besides a down payment?
Ask for the buyer's financial information in writing, plus a credit report and proof of income. The state-approved Buyer Financial Information Sheet is one way to collect it. Then verify what you can before closing.
This site is for general information about Utah law and is not legal advice. Using it does not create an attorney-client relationship. Every transaction is different — talk to an attorney about yours. Attorney advertising.
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