Last week, I mentioned the “seller finance gap”—this week, I want to walk you through how I think about it.

At its core, the seller finance gap is the space between two things:

1. The minimum underwriting standards required by law (think Dodd-Frank and related regulations).

2. The stricter standards most banks use today.

Dodd-Frank sets a legal floor—a minimum bar that lenders must meet when originating loans for owner-occupied properties. It ensures that borrowers can demonstrate a basic ability to repay, usually based on credit score, debt-to-income ratio, and other standard metrics.

If a borrower doesn’t meet those legal minimums—or you didn’t verify that they do—you’re entering risky territory. That’s the zone regulators and state attorneys general watch closely for signs of predatory lending.

But here’s the twist: most banks today operate well above that legal minimum. The irony? Dodd-Frank was created in response to banks using little to no underwriting in the early 2000s. Fast forward to now, and banks have gone the other direction—tightening up their standards dramatically. There are a few reasons for this, which I’ll dig into another time.

The result? A growing gap between the legal underwriting floor and the banks’ much higher ceiling.

And right in the middle of that gap—that’s where seller financing thrives. Here’s how I visualize it: