Questions about seller financing

[Steven Leigh]

I'm considering a flip where the seller is willing to do seller financing. It's an investor who bought is really cheap but doesn't have time to rehab it for a while, so they are considering selling with a little markup. They are asking $55k, and the terms they've mentioned so far are 10% down, and that they will do interest only.

Can you give me an example of what that structure looks like? What would my payment likely be? What interest rate do you think they will expect? Since I've never done a seller financing before I really have no idea how this would work. Obviously I will get more info from the seller soon, but I want to have a better idea going in.

Also, what other closing costs, fees, and other costs in the transaction should I be planning for?

Thanks in advance for your help.

[Carlos Rovira]

Most private lenders would expect upwards of 8%. It is in your best interest to get the lowest rate possible so that is the one thing I'd negotiate the most. I bought my house with 15% down, and seller financing at 5%, but I just got lucky and the seller was 70+ years old, didn't live in the property, and didn't need the money, so he was flexible. If you're dealing with a savvy investor, he may expect a higher rate. 

As far as payments, if you buy at $55k with 10% down, you're financing $49,500. Your monthly payment would be $49,500 x [Interest Rate] / 12. Just do the math with whatever rate you are expecting.

Closing costs would be more or less the same as a regular transaction. They may be a bit cheaper since conventional lenders tend to charge high fees for origination, escrows, etc. Again, it depends on what terms your seller is providing for the financing. Hard to answer the questions without more specific information. Have an open discussion with the seller and see what he/she is expecting. I'd be interested in finding out what he offers.