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Is a loan from a seller a bad idea?

Is a loan from a seller a bad idea? The seller is offering a loan as part of the deal. The interest rate is below what I could get from a bank, but I'm worried about a shady deal.
Asked By Meri | San Diego, CA | 397 views | Finance Legal Info | Created 1 year ago
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135 Answers
Amanda Courtney

REP Realty Group

(8)

Not necessarily! Seller financing can be a great option, especially for buyers who may not qualify for traditional loans or investors looking for flexibility. What matters most are the terms — the interest rate, down payment, and repayment schedule. The seller keeps a lien on the property, meaning if payments stop, they can take the home back. When structured properly and reviewed by a professional, it can be a win-win for both sides.
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Julianne Clark | Your Lowcountry Compass

Charter One Realty

(48)

Seller financing was common practice in the past. My advice is to have an attorney draw up or review any contract the Seller is using -- so that you are fully aware of the terms and conditions you are accepting. Many times Seller financing is for a limited time -- under 5 years. After which you will need to get traditional mortgage. You negotiation is at the initial purchase. Money that you put down may or may not be refundable if for some reason at the end of the term you are not able to get traditional financing. Have your inspections done before signing and maybe even pay for an appraisal to assess current value of home. If for some reason home values decrease -- you will be locked into the price you accepted when you "bought" the home using the Sellers as your Lender. There are situation that Seller financing is beneficial. Make sure you are in that kind of situation. Traditional financing will have a title search and appraisal as part of the purchase. Your taxes and property insurance can be included in your monthly payment to aid in budgeting and it will remain pretty consistent (fluxuations are increases in property taxes and insurance rate) for the life of the loan or until you refinance. There is a sense of security in using a lender or bank to hold the loan for you home purchase.

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12 Answers
Mohamed Hassan

NextHome

(54)

Sometimes it is better than banks! It depends on how it is structured and what is the reason you are choosing the non traditional way. I personally think it is good if rate is below and leverage is good, but to avoid shady, if something sounds too good, or it feels wrong for any red flags, it maybe is. It is not common, and you will need an attorney to draft and review legal docs not just a Real estate agent. Having a good attorney review the legal, and a Realtor to review the real estate deal, unless you are an expert savvy investor, you should be fine. Always have an exit plan B plan when the loan is due eventually.

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