Newbie in seller finance

[Ali Mol]

I am planning to sell my single-family home (SFH) with seller financing in St. Augustine, Florida. I have done some research and learned a lot from this forum. Based on comparable sales, we are targeting an asking price of $430,000 to $435,000. The property was previously rented for $2,600.

Currently, I have a remaining balance of approximately $275,000 on my current conventional mortgage, which has a term of 30 years and an interest rate of 3.25%. I am considering offering seller financing with a minimum down payment of 25%, an amortization period of 30 years, and a balloon payment due after 5 years.

I have also learned from this forum about note/mortgage servicing companies and have started looking for the best one to meet my needs.

I am aware that the interest rate on a 30-year conventional mortgage is tied to the 10-year Treasury note (for 80% loan-to-value ratio, it is +2.9%). However, I am unsure about what would be a fair interest rate for seller financing and how it might change based on higher down payments, Is it normal to use the prime rate or a comparable rate for a conventional mortgage?

My lawyer has informed me about the option of a "land contract" with an underlying mortgage and the associated risk of the mortgage company calling the mortgage. In this market, do you think it makes sense for any buyer to take on this risk?

[Mason Liu]

Hey Ali,

So just to be clear, you're looking to sell the house via sub-2 + seller financing? IE: If someone purchases the house for $430,000, you would be open to them putting 25% down and assuming the loan for $275,000, and you offering seller financing for the remaining $47,500?

I think a "fair" interest rate will be a wide range, cause at the end of it all if it is a income stream that you are happy with and a buyer is willing to pay, that would be fair. I would suggest that depending on the offer price you receive, you can negotiate on the interest rate for the remaining seller finance amount to a point that both of you are happy with. Prime rate right now is 8.25%, which I feel would deter some buyers since the downpayment is pretty high and you can get a conventional mortgage at least a point lower (even though the seller carry is only $47,500).

What is the reason for selling with seller financing as opposed to selling it conventionally?