I am having trouble understanding seller financing? Help??

[Jimmy Lieu]

Hello BP community,

I'm learning about seller financing right now, but seem to be having a bit of difficulty fully understanding seller financing and its perks. Here is what I am still confused about:

1. If I have access to FHA (or any low % down payment mortgage loan), why should I be looking into seller financing? With seller financing, I'll most likely have an interest rate of 5-7% and need to refi after a few years to pay off the balloon payment. Meanwhile with FHA, I will have an interest rate around 3% and need to refi after a few years as well. And if we're comparing down payment sizes, FHA starts at 3.5% down meanwhile seller financing can be anywhere from 0-20% down. With these numbers in mind, how exactly is seller financing "better"?

I understand that seller financing allows you to save on a lot of closing costs, saves you time, gives you flexibility on a down payment, and allows you to qualify for financing (if you're not able to qualify for a conventional mortgage). But aren't you paying for these perks with a higher interest rate? So doesn't it offset each other? Am I missing something here?

Here are the perks from what I can tell:
- Gives you flexibility on a down payment
- Saves closing costs and time
- Gives you access to financing that you might not be able to qualify for

2. If I was to do seller financing, how should I be adjusting the interest rate/amorization period/down payment, and balloon payment? How do you figure out the most optimal #s for your seller financing deal?

3. Why are people willing to pay higher prices when using seller financing? I noticed a lot of people usually make higher offers when using seller financing and I wonder why this is?