Balloon payments

[tomato204]

I have been looking for "Sale-by-owner" land in Tennessee. Found this one place, for 5 acres the monthly would be a little less than 200 bucks. I can't recommend them 'cause I don't know them, but I'll list the link if anyone wants to check it out. The main thing I DON'T like is the balloon payment. I just don't see why an honest person would set a trap for folks that way, knowing it's harder to deal with a big payment on the end, grrrr.
www.classiccountryland.com/

[Anon001]

Some people prefer balloon payments. When this place was bought in spring of 1997, I had it amortized for 30 years with a balloon in 15. It got me a better interest rate with the land bank. The calves paid for it in ten years. I had two payments each year of $3000 each. One due on Jan 1 and the other June 1 of each year. That way I made payments (plus extra) when calves were sold.

I don't consider balloons to be traps. If a landowner is carrying a contract and wants a balloon, it can be as a favor or a help to someone.

What type person has the landowner carry the contract? Usually people that can't qualify for a mortgage or don't have enough down payment. (Ag land usually requires 30 to 35 percent for downpayment - in this part of the county).

The landowner may agree to a contract to help the buyer buy time to qualify for a mortgage, or the time to come up with a down payment for a mortgage company. The landowner carrying the contract doesn't have to do it.

A balloon is not always a bad thing. It depends on who is carrying the note and why they have a balloon.

The link doesn't point to a particular property. But, at $200 per month for five acres, how long do you have to pay on it? If that is all the payment is, then most anyone could save extra money each month to put toward the balloon.
Paul

[otobesane1]

One caution regarding owner financing and balloon payments....read the terms very carefully before signing anything or giving anyone money. Some loan agreements clearly state that you lose the property if you are even one day late making a payment or the balloon payment. You could make a year's worth of payments and a couple of balloons only to lose the property because of one late payment. Also, ensure that if there are multiple balloon payments, the payments do not escalate without your knowing it. Some contracts escalate the amount of loan payments and/or the amount/frequency of balloon payments over time. You could begin with reasonable monthly and balloon payments and end up with ones that you can't afford. Or end up with a balloon payment every six months that increases to one every 3 months. Granted, most of these type of contracts are few and far between and usually only happen between unscrupulous sellers and desperate buyers. Caveat emptor...let the buyer be ware.

TK

[tomato204]

Paul, you're right, it doesn't point to a certain property but they have only the one subdivision in TN. I don't know what they have in other states. I think this could be a deal for somebody, that's why I passed it on, BUT with the warning. Of course you always need to read before you sign.

[kawalekm]

Balloon payments are not a trap, but a workable way of doing business for land purchases. The original idea was to make lump sum payments on a yearly basis for farmers that only had income once a year (after harvest). It worked back then and still works today. We wouldn't have been able to afford our land without balloon payments.

When we were ready to buy our land, we decided to get a home equity loan to finance the purchase. The loan we got was less than the purchase price, so we put a down payment on the land and immediately started paying the HELOC back down each month. To make the yearly balloon payments we withdrew more money out of the HELOC with the equity we had put back in by monthly payments. Well, the land is now paid off and we own our homestead free and clear. The only thing we now owe on the homestead is our yearly taxes.

[Anon001]

Balloon payments are not a trap, but a workable way of doing business for land purchases. The original idea was to make lump sum payments on a yearly basis for farmers that only had income once a year (after harvest). It worked back then and still works today.

That really isn't considered a "balloon" payment. It is simply the frequency of the payments. Almost all ag land is set up with the farmer dictating the frequency of the payments. Most farms make one or two payments per year (some quarterly) depending on the type of operation and frequency of revenue. It is rare for farmers and ranchers to set up land payments on a monthly basis. When this place was bought, it was left up to me to determine how often I wanted the payments. I knew I sure didn't want monthly payments. So, I opted for 2 payments per year of $3,000 each. I could have easily done one yearly payment of $6,000 but I had two calf crops per year, so it made more sense to pay twice per year.

A balloon payment is the final large payment due at the maturity of the loan.


Paul

[rantinraven]

Adding on to what Paul has said...

Balloon payments can really work "for the buyer". Say a buyer has less than stellar credit, or has never bought on credit before. In the current housing market it is nearly impossible for a buyer to find a mortgage. A loan with a balloon payment acts as a "pre- mortgage" Typically you would have a loan with monthly payments for 20-30 years with a balloon payment in 5-10. This option gives you the ability to go to the bank, with the payment history you have accumulated so far to "show" that you are a good credit risk. The bank takes a look and says wow they have been able to make the payments for the last 48-72 months on time, they paid x amount of money down, they have x amount of equity... in short it shows you are in this for the long haul and not about to have buyers remorse.

.

[anna]

Another thing to look out for in a land contract is whether or not the seller owns the property free and clear or has a mortgage. If there is a mortgage, I'd have the contract written so that you make the mortgage payment directly yourself and make a separate payment to the seller for the balance. Lately we've seen several cases where contract buyers have lost everything to foreclosure due to the seller not paying his mortgage on the property. If there is not a mortgage, then part of the contract should forbid the seller borrowing against the property. When making a major investment you just cannot be too careful. Balloon payments are fairly common with real estate contracts. If you have a balloon payment due in 15 years, you should start saving for it the day you sign the contract. That gives you 180 months to save the amount needed which is a whole lot better than finding yourself 12 months from the balloon with no way to pay it!

[Anon001]

Another thing to look out for in a land contract is whether or not the seller owns the property free and clear or has a mortgage. If there is a mortgage, I'd have the contract written so that you make the mortgage payment directly yourself and make a separate payment to the seller for the balance. Lately we've seen several cases where contract buyers have lost everything to foreclosure due to the seller not paying his mortgage on the property. If there is not a mortgage, then part of the contract should forbid the seller borrowing against the property. When making a major investment you just cannot be too careful. Balloon payments are fairly common with real estate contracts. If you have a balloon payment due in 15 years, you should start saving for it the day you sign the contract. That gives you 180 months to save the amount needed which is a whole lot better than finding yourself 12 months from the balloon with no way to pay it!

Anna, if a person sets up the contract to have the payments go into escrow and applied to the original mortgage, you avoid that problem. In some states you can register your contract with the county clerk. Here, I think it's called an "Affidavit of Equitable Interest". That keeps the seller from being able to take out another mortgage on the place and keeps him from being able to sell it out from under the buyer. Also, the title search and insurance will eliminate a lot of potential problems.

Again, as Martin has said, just be sure you know what you are signing and have your own lawyer look over the contract.

It all boils down to doing your homework.

Paul

[mtwildflower]

.... Also, the title search and insurance will eliminate a lot of potential problems.

Again, as Martin has said, just be sure you know what you are signing and have your own lawyer look over the contract.

It all boils down to doing your homework.

Paul


There are so many people who will enter into a property and think that buying title insurance and paying for a title search is a waste of money unless the seller pays for it. When the seller won't, the buyer doesn't think it's necessary. I can think of two people right off the bat who lost their properties because they wouldn't take the time or spend the money to protect themselves.

Stupid stupid stupid!