Need advise on structuring a seller financing deal

[Marcelo Ricarte]

Hello BP Family, my wife and I got a possible deal financed by the seller. We have no knowledge on how to structure a deal like this so we need your help!

Some info: Seller is getting rid of some properties and we want to acquire two of them.

Asking price $245k each. Two duplexes. Roofs 10 years old. Overall they look decent from outside (maintained) in a B- area. Tomorrow we'll do a walk through to see the inside.

Is there a standard approach in this cases?

Any advise will be greatly appreciated.

[Chris Mason]

I see seller financed deals when people are refinancing out of them. 

From your perspective as the buyer, what I'd shoot for:

• Interest only payments. If you do amortized payments, or get an i/o loan and voluntarily pay extra to pay down the balance, the odds of you and the seller/lender having a dispute about something just shot up about 5 fold. 
• No prepayment penalty. 
• Lowest down payment possible. That's likely the biggest advantage of seller financing over what we can offer to investors. 
• Long period until a balloon payment due, or no balloon at all. If you get in with little down, you want as long as possible to allow appreciation to get you at the equity position you need to refinance into a traditional 30YF, should you wish to do so. 
• Fixed interest rate. Seller might not even consider doing otherwise, in which case - great! - don't bring it up. Let's say you can get 6% fixed locked in today, and 4 years from now when you want to refinance prevailing market rates are 7.5%. If you've got no balloon payment due, and that 6% is fixed, great! Just don't refinance, keep that seller financing forever!
• No due on sale clause. As a traditional lender, I can't offer you this. But if you can get the seller to agree to it, power to ya. Who knows what the future will bring, but now you've got an exit that most people selling do not have.

If you get all or most of that list, you will be doing better than what you could get from a traditional mortgage lender.

If they want 25% down, 12% to rate, 2 points upfront, etc etc, then you'd be better off getting a traditional mortgage assuming you otherwise qualify and the property is in sufficiently creditworthy condition. If you're doing seller financing under terms like that just because the property is trashed, "no prepayment penalty" is the most important thing as it will free you to refinance once you fix the place up a bit.