Seller Finance My Home

[Ryan Haase]

Quick Back Story:

My wife and I moved from Michigan to Texas in September and have had our condo up for sale since. We've had lots of people come look at it but only one low ball offer (8% below asking) and the buyer wouldn't budge off of their number. Last night we received an offer from an investor. The condo is for sale for $194,900 and they offered full price as long as we would seller finance $94,900 of it at 3.5% over 25 years with a balloon at the 36 month mark. This deal doesn't work for us because we owe $134,000 on the condo and don't want to put out our own cash to settle the mortgage.

I have a few questions:

1. Would it be crazy to go back and agree to seller financing for a sales price of $200,000 with $150,000 down, 3.5% over 25 years with a balloon after 36 months? My justification for raising the sell price is that they're getting a deal at 3.5% (one they obviously can't get from a bank)

2. Other than only seeing a 3.5% return on our money, what is the down side to seller financing? 

3. I'm assuming we would only pay taxes on the interest, is this right?

We would have a lawyer draft up the documents (at the buyer's expense) and make sure there is a record of mortgage filed in case they stopped paying.