Seller Financing Family Sale - How Can I Purchase a $400K Home for $275k from Parent

[Harry Shmelts]

Hello everyone,

I have a unique situation regarding a real estate transaction within my family, and I'm seeking some guidance and advice. I hope you can provide me with some insights or share any experiences you may have had with seller financing.

Here's the scenario: A family member is willing to sell me their home, which has an appraised value of $400,000. However, they are offering it to me at a discounted price of $275,000. While this is an incredible opportunity, I'm facing a challenge in securing a loan for the $275,000 due to high interest rates from traditional lenders.

I've been exploring the option of seller financing, where my family member would act as the lender and provide me with a loan to purchase the property. I'm wondering if anyone here has experience with this type of arrangement or can provide insights on how it could work in my case.

Specifically, I have a few questions:

1. Lets say they owe $40k left at 3% would I just pick up this loan? Where would they get the $275k they want?
2. How should I approach negotiating the terms of the seller financing agreement? What aspects should I consider?
3. What would be a reasonable down payment percentage or amount to propose to my family member?
4. Are there any potential pitfalls or risks I should be aware of when engaging in seller financing with a family member?
5. What would be a fair interest rate for both parties? Are there any resources or guidelines to help me determine a reasonable rate?
6. Is there any specific documentation or legal process I should be aware of to ensure a smooth and legally sound transaction?

[Nathan Gesner]

Quote from @Harry Shmelts:

1. What are their goals? Do they need a chunk of money right now so they can purchase another home, or can they wait? Maybe they only need $6,000 to take a nice cruise? Determine what they need, then figure out how to fill that need.

2. Refer to #1. You find out what they need first, then you figure out a way to negotiate a deal that works for both of you. 

3. Refer to #1.

4. If you screw up the financial transaction, you can also destroy the relationship. Don't do this if you aren't 100% sure you can hold up your end. They are offering you a great deal and you should respond in kind.

5. Refer to #1. I've seen people buy multi-million-dollar properties with 0% interest. Negotiate something that makes the investment affordable for you. If you can afford making payments with 7% interest, then maybe you offer that in exchange for them offering you such a sweet deal. If the purchase is only affordable with 3% interest, then that's what you offer. Be prepared to explain or justify what you are asking for.

6. Here's an article that explains the documents you'll need: Seller Financing Documents I would also add an amortization schedule to show the payment schedule, including principal and interest.

Read some articles and get some ideas on how to structure this. Have an open conversation with your relatives and let them do most of the talking. You may be surprised to learn they'll accept an offer of a small down-payment, low interest, and other great benefits. In other words, don't open the conversation by offering them 6% interest and later find out they would have accepted 2%.

It sounds like you don't have enough for a decent down-payment. In that case, you could do a lease option where you lease the property for a certain amount of time, usually making higher-than-usual payments. This shows you are serious and demonstrates your ability to pay. They can agree to set aside a certain amount of each payment for you and apply that as your downpayment. With money for a downpayment and a proven record of payments, you may qualify for a traditional loan that gets you the house and gets your relatives all the money they need.