Owner finance - Need help

[Yangjee Sherpa]

Hello BP family...

I just talked with an owner. This is how it went.

Asking 265k for 1688 sq foot house in santa fe, NM. Asking price is good for that neighborhood.We offer 250K. Owner wants 20% down with 6% owner financing. 1400 monthly pmt (though owner said the monthly payment is 1199, she said she will put the rest 201 towards principal). House needs paint jobs, and carpet needs to be cleaned. 

Owner has 30 years conventional loan. Owner bought the house in 2006 and after that rented it for 4 years, and now ready to sell it.

My question is what should I be aware of, and when I give the down payment will that money should go to the bank that owner owes for the property, or the title company will take care of everything?  

Thank you in advance.