Interest Only Seller Financing Questions

[David Cherkowsky]

Hi all,

My agent presented an opportunity to me that would use seller financing and I had a few questions. The seller is looking to sell a house he bought and renovated. Based on a conversation with my agent, the seller is looking to be presented an offer and we would negotiate from there. This would be my second REI; I have another house that was purchased with a conventional loan. I've been reading about seller financing the last few days, and there are a few things that I'm still unclear on.

1. If I presented terms for an interest only payment for a term of 5 years, with a balloon payment due at 5 years, could I refinance during those 5 years into a conventional loan if interest rates drop?  My worry is the 5 years pass and the balloon payment comes due, and now I am stuck with whatever interest rate is available at the time. For example, if in your 3, interest rates drop to 3%, could I refinance then into a traditional loan?

2. After 5 years, I will have only paid interest, the principal will not have changed. Would all traditional loan options be on the table? I plan to house hack, so I assume I could move to a traditional loan at 5% down at that point. Is that correct?

Thank you in advance for your help.