Seller Financing Advantages and Disadvantages

[Hector Espinosa]

Hi,

I'm negotiating a seller financing deal which may be my first one and would like to ask for some advise about and what are advantages and disadvantages about seller financing deals.

These are the seller financing terms:

• House Price: $330,000.00 USD​ (Sellers still owe ~$301,000 USD)
• Down Payment: 5% = $16,500 USD​
• Loan Amount: $313, 500​ (Monthly payments will be amortized as a 30 years loan​)
• Interest Rate: 4.531%
• Balloon Loan Term: 5 Years
• Monthly Payment (P&I): $1,594.24​
• Closing Costs:  ~$3300 ​
  
• Zip Code: 74105
  
• Observations:  
•      * HVAC requires an update but pending to inspection (replacing with a new one will cost ~$10,000 - $15,000 USD )
•      * Expected Rent Income: $2,000- $2,300 but this is has been really complicated to get a good estimate because is all over the place in the different sites I have checked.
• * House is a 2699 sq/ft Single Family Residence| 3 beds, 3 bathroom | Built in 1956 | NO HOA
•      * There is a chance I could pay only interests so I can start saving some cash for the incoming maintenance and annual payment equivalent to the 12 monthly payments (~$5,029.77 per year during the balloon period)
• The advantages I can identify in this deal for me are:
• * Lower interest compared with traditional loans
• * Lower down payment compared with the ones compared for traditional loans
• * House is technically ready to be rented (waiting for the inspection) 
• * Forecast - 3 yr growth (appreciation) is expected to be 8.1 % (Bigger Pockets)
• The disadvantages I can identify: 
• * I am still vulnerable to foreclosure if sellers don't make mortgage payments to the bank.
• * Refinancing issues at the end of the Balloon Payment?
• I am betting for the appreciation of the house in the next years because I don't think I can cash flow in the first years.  
• I would like to hear your thoughts and what I need to verify before making an official offer. So far, I'll be requesting an inspection of the house to know what needs to be updated/repaired.
• Thanks for your help.