seller financing my house sale — what's the catch?

I publish illustrative scenarios prepared by my practice. All participants and conversations are fictional. The fictional posts are not posts by real users, accounts of client experiences, or reports of actual results.
Illustrative scenario prepared by my practice.
For informational purposes only. This is not legal advice. Laws vary by jurisdiction. Consult a qualified attorney for advice specific to your situation.
Hypothetical question

buyer can't get a conventional mortgage and is asking about seller financing on my $480k house. they offered 10% down and a 6% interest rate over 15 years. interest rate's better than i'd get parking the cash. is this a terrible idea?

Illustrative response

the catch: if buyer defaults you have to foreclose. judicial foreclosure is slow + expensive + buyer can damage the property in retaliation. and 10% down is RISKY — if home values drop they'll just walk.

standard seller financing terms: 20%+ down, full amortization with balloon payment in 5 years (so you can renegotiate or force a refinance), Dodd-Frank compliance if buyer is consumer.

Illustrative response

also: dodd-frank requires that for owner-occupied residences, the seller can't be a licensed loan originator AND must verify buyer's ability to repay AND can't have a balloon. complexity hurts. consult a real estate attorney before signing anything.

Illustrative response

my 2 cents: if buyer can't qualify for a regular mortgage there's a reason. the 6% you're getting is risk-adjusted compensation, not a gift. due diligence the buyer hard.