[Gypsy]

Hello All,
The boss (wife) and I are going to look at a place tonight. Does anyone know what this means:

"Owner will finance with a 2 year balloon $7000 down"​

Sounds like “crazy talk” to me! Our real estate agent seems to think it is a good deal. Anyway the place includes a barn which has been adapted into a garage for a semi and apparently the fella selling the place will be willing to do this for us if we agree to allow him to continue storing his truck there for 2 years. I’m sure that our agent will explain it to us tonight, but if someone could explain this to me before hand so that I could at least pretend like I have a clue, it would be greatly appreciated. Thanks in advance!

 

[agmantoo]

Means that if you give the owner $7000 now, the owner will carry the loan for up to 2 years and at the end of the 2 years the owner wants the balance to be paid in full.

 

[jassytoo]

I take it to mean that you put 7 grand down payment. You pay the owner payments for 2 years then pay the rest in one payment at the end of the 2 years, thats the balloon payment part.

 

[OUVickie]

"Owner will finance with a 2 year balloon $7000 down"​

Sounds like “crazy talk” to me! Our real estate agent seems to think it is a good deal. Anyway the place includes a barn which has been adapted into a garage for a semi and apparently the fella selling the place will be willing to do this for us if we agree to allow him to continue storing his truck there for 2 years. I’m sure that our agent will explain it to us tonight, but if someone could explain this to me before hand so that I could at least pretend like I have a clue, it would be greatly appreciated. Thanks in advance!

Holy Moly, if you give that guy your money and let him call the shots - he's the one getting the good deal, not you! Balloon payments are only in the interest of the person financing the loan - if you can't make the payment when it comes due, you're up a creek.
And BTW - of course your RA wants you to take it, it's a great deal for him too!

 

[agmantoo]

It is not necessarily a bad deal. You do not have the expense and aggravation of getting a loan at this time. It will let you shop for a mortgage over the time period and it may allow you to establish good credit with your payment practices. Where the risk may enter is you need to be comfortable in knowing that you CAN get a loan at the time the ballon payment is due. Additionally, you need to get a contract drawn by an attorney stating the full details of the agreement so there are no surprises in 2 years and you need to get the promissory note/mortgage recorded so that the seller's position is known should someone need to research the deed.

 

[FolioMark]

Everyone else has explained to you how this work but it isnt always a bad deal. it depends really on how much money they want all together. If the principal isnt large and the interest rate is reasonable you could pay off a good deal of the price and you would have two years to secure a conventional mortgage with a bank for the balance (the balloon). of course if you cant secure a conventional mortgage and cant pay the balance in two years, you are up the creek. But as you said, you have good credit with the bank, securing the conventional mortgage wont be a problem. If you can get a conventional mortgage from the get go I would do that and forget the balloon. If however you are having a little trouble securing a loan, the balloon gives you two years to shop around and improve your credit rating.

 

[Blu3duk]

means for $7000.00 you getv to move onto the property, make payments to the current owner, and in 24 months you have to pay the whole note off

 

[OUVickie]

Everyone else has explained to you how this work but it isnt always a bad deal. it depends really on how much money they want all together. If the principal isnt large and the interest rate is reasonable you could pay off a good deal of the price and you would have two years to secure a conventional mortgage with a bank for the balance (the balloon). of course if you cant secure a conventional mortgage and cant pay the balance in two years, you are up the creek. But as you said, you have good credit with the bank, securing the conventional mortgage wont be a problem. If you can get a conventional mortgage from the get go I would do that and forget the balloon. If however you are having a little trouble securing a loan, the balloon gives you two years to shop around and improve your credit rating.

Cash outright or a different type loan is a good idea!
I would still have a problem with the guy wanting to store his truck on my property - my liability - but maybe you're more generous than me!

 

[BCR]

2 years storing the truck...then he and who else will have access to the 'barn' and everything in it? When are they allowed on the property-any time night or day? Who else can he bring to get it? Who holds the liability insurance on the building if his mechanic gets injured there? What if you need to hurry and sell the property in 18 months...what about the truck then? What if damage occurs to the truck while its stored (vandalism) or it is stolen?

Can you tell I wouldn't store the truck?

 

[RAC]

I'd RUN from this storing the truck nonsense--unless you drew up a proper rental agreement, with him paying rent and carrying renter's insurance etc., etc. If the insurance is cancelled (you are to be listed as a beneficiary and be notified) you should be able to evict. More trouble than it's worth, imho.

Any mortgage agreement you draw up should include a "NO PREPAYMENT PENALTY" clause. If you win the lotto, for example and want to pay in full, you want to be able to do that without paying extra for the privilege.

 

[Gary in ohio]

I guess I would wonder why he would offer this deal.

A 2 year balloon (at what monthy payment) plus $7000 down and you have to store his truck.


Sounds like he wants $7000 to play with and have you pay his mortgague for 2 years then he wants to sell. Not specificly a bad deal, but why do it. Your going to need to have a second downpayment when you really buy the place in 2 years so where is that money comming from. What will the interest rates be in 2 years. What if they are 10% can you still afford the place?

If storing of the truck is a big issue for the seller then offer to store it but buy the place and rent back storeage space to him for $0.

 

[Tracy Rimmer]

Anytime a real estate agent, or anyone who is going to make a commission off you, tells you "it's a good deal" -- run. Hard. In the other direction.

"Balloon payment" deals are only good if you expect to be coming into a large chunk of money in the next couple years, and don't have much to put down right now -- and can't make yourself wait until you have that large chunk of money in hand.

Just remember that if the balloon payment comes due, and you can't come up with the money, the current owner keeps your $7K, all the payments you've made, and chucks you out on your behind with NOTHING.

Good luck.

Tracy

 

[fordy]

.............That 7,000 down payment is necessary for him to pay the Commission to the RE agent. You will owe the Principal PLUS the Accrued interest at the Stated rate in the contract. If , you like the property, and IF you think there is a reasonable chance of acquiring Long Term financing then have him drawup the contract and have your attorney evaluate it. ............I would...NOT.....sign any sales contract..........UNLESS he will give you an Additional 2 year OPTION so that you can attempt to Obtain financing which would give you atotal of 4 years. Realize that Interest Rates Will be Rising in the near term , especially AFTER the Election is finished........Don't let him nail your FEET to the Floor by signing a contract for JUST 2 Years. ............fordy...

 

[RAC]

I was going to say, most balloons on property are at least five years. I would look real hard at other financing--often sellers push seller financing because they KNOW a bank won't finance on a property. Check all disclosures and make sure you have an inspection.

 

[Ken Scharabok]

1. Have your own appraisal done. Will cost your probably $300-$500. However, it gives you a pretty good feeling for what the property is really worth - not what the owners or RA think it is.

2. Insist on a title search and title insurance.

3. Consider renting him the barn totally at the going local rate.

4. As noted above, interest rates are almost guaranteed to go up as the economy improves. Greenspan has indicated they will do it in small steps this time, but... Remember back in the Carter Administration a 12% mortgage was considered to be cheap.

5. If you can swing the financing, and the place is worth it, consider just obtaining your own bank financing now as the current interest rate for a fixed 30-year loan.

Ken S. in WC TN

 

[Amy Jo]

I don't like that kind of deal... because you can come on hard times and even though you'd be paying that mortgage amount for housing anyways.. the bank may not think you can meet the standards they want you to and you would lose your home. If you qualify today - finance it today. If not, look for something you can qualify for today or wait until you're qualified.

 

[Beeman]

The truck storage part has it's downfalls as others have pointed out. If properly by a lawyer with your interests an agreement could be worked out.
First question is do you have problems qualifying for a mortgage? Is that the reason for not an outright sale? Will you be in a better position to qualify for a mortgage in 2 years? If all of these are yes answers and the last one is a definite yes than maybe you could make it work. If not those reasons than just buy a place without all of the extra BS.

 

[BrushBuster]

2 year balloons are a pretty standard thing for someone buying a big truck on a lease to own deal and at the end of the 2 years they give you the option of purchasing your already used when you bought it truck or going another balloon for a new one. a lot of truckers get thier start this way although it is the more expensive route, but still yet the only they can afford. probably just me being senical, but makes you wonder if this guy is not letting you pay his truck off for him and when you do he`ll sell you the place. not necsesarily a bad deal depending on the place, price, ect.

 

[Ann-NWIowa]

If you can qualify for a conventional mortgage now is the time to secure it. Interest rates are low but they are starting upward. It could cost you big time to wait two years to get your mortgage.

I assume this is going to be your home not a business so I wouldn't want this person having access to my property for two years without being able terminate the agreement. What if you need the building for your own use or what if he turns out to be a real pain in the backside? I would maybe agree to rent to him with the understanding of 30 days notice to terminate on either side.

Real estate contracts can be okay but you have to realize that you miss one payment or violate any of the terms of the contract and he can go to court and have you forfeited out of the contract and he keeps the down payment and the property reverts to him.

Realtor aside - get an attorney to review BEFORE signing any real estate contract and have a title search to be sure this individual has clear title to the property. I've seen people lose homes they purchased on contract because the seller failed to pay his mortgage on the property. If there is a mortgage on the property, make arrangements to pay your payment direct to the mortgage company so you KNOW its paid each month. If your payment is more than the mortgage payment, you can send a second check to the seller for the balance. Its good to specify in the contract that the seller cannot cause any liens vs. the real estate. If the seller is smart he'll have the same requirement for you.

 

[Qvrfullmidwife]

The balloon just means that he is willing to carry the note for two years but needs you to pay up (or have alternate financing by then).

When we bought our current home, the 3 yr balloon and sky-high credit was part of our "deal with the devil". There was no other way that we were going to be given a loan. Going ahead with it was our chance to work hard to prove ourselves for the three years or so, until we could get a better deal. For us, it was worth it as by the time the three yrs was up, our bad credit days were far enough behind us, and the value of the property had gone up enough coupled with a better paying job so that we were able to refinance for a lower note and a 15 yr loan.

I think it is less than optimal, but can only be decided on the basis of your specific situation.