Seller financing good or bad?

5 Replies

One of my client is buying a single family with seller financing. What are the drawbacks for buyers? What should we be watching out for? Interest rate is good and 30 years mortgage.

Usually the interest rate is higher than what would be available from a bank, I'd just make sure you read the terms of the loan as well, you wouldn't want a massive prepayment penalty or something like that.

Also I know this sounds obvious but just in case, make sure they are completely clear on whether or not there's a balloon payment in 5 or 7 years, for example - a lot of time seller financing is amortized over 30 years but the seller wants to be cashed out earlier.

Also I know this is a late add-on but figure out if you're having the payments managed by a contract payment service or not. IMO safest bet is probably to do that seeing as then they are the neutral third party responsible for tracking payments, holding the deed of trust, and providing the payoff statement when your client pays off the loan, etc., rather than having the seller do this. (Risk of seller doing it is that people die, lose paperwork, etc.) Typical charges in my area are a setup fee of a couple hundred dollars and then around $15 per month, I know it adds up so it's up to the buyer to determine their comfort level with either choice. Hope your deal is going well.