Unpopular opinion: I think seller financing is better than a bank loan for fixer-uppers

I bought a duplex in Phoenix last year that needed a new roof and plumbing. The seller offered 5% interest with no bank fees, and I closed in 10 days instead of 45. Has anyone else tried this route on a property that banks said was too risky?

2 comments

2 Comments

lane.eric13d ago

Yeah that 5% is way better than what banks were offering back then, I remember rates hovering around 6.5-7% for investment properties around that time. But just be careful with seller financing on fixer uppers, the seller might not let you do a full inspection before closing since they're already taking on risk. Had a buddy in Tucson who got burned on a place with bad foundation issues because the seller skipped the inspection contingency. Also make sure the note is structured so you can refinance later without a huge prepayment penalty, some sellers get weird about that if you try to pay them off early.

alicecooper13d ago

I mean, I get the appeal of skipping bank headaches and closing fast, but I actually think seller financing on a fixer-upper is way riskier than people admit. You're basically taking the seller at their word about the condition, and like lane.eric said, you're not getting a normal inspection contingency most of the time. Plus, a lot of sellers who offer financing aren't exactly professionals with clean paperwork, so you could end up with a lien or title issue that a bank would've caught and you just missed. And yeah, maybe it's just me but if you can't get a conventional loan, that usually means the property is in worse shape than you think, not that you're getting some secret deal.