Hi,

I am considering a Contract for Deed purchase of a home with a balloon due in 3-5 years. I know I can make the home payments, but my concern is financing the balloon.

If housing prices increase while I am paying my Contract, can I use this "difference" to help me pay off the contract?

In other words, if I have a purcahse contract for 120k and at balloon-due date the home is worth 135k, can I leverage part of the home value to finance my loan? (Down payment, closing, etc.). Or will I need savings-in-hand (cash) to effect a mortgage at that time?

Thanks for your help!

Steph

Quote:

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Originally Posted by stefj3

If housing prices increase while I am paying my Contract, can I use this "difference" to help me pay off the contract?

In other words, if I have a purcahse contract for 120k and at balloon-due date the home is worth 135k, can I leverage part of the home value to finance my loan? (Down payment, closing, etc.).

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Generally, yes. I've done many a balloon loan, but never one as short as 3-5 years. I would have a small concern that in only 3 years the equity would be so small that the loan would be at a high interest rate.

I strongly suggest going for a 5-10 (preferrably 10) year balloon... and make sure there's no early payoff penalty so that you can, if you wish, refinance to pay it off earlier.

Remember the reason you are doing a ballon note is that your credit is so bad at this point and time you can't get a real loan, and that is why you do a contact for deed.

Historically ( not nationaly but my personal record) about 90 pecent of so of my contracts for deed come back to me, and they lose the house.

So what is going to change in 3 years that will get you better credit ( remember this contract for deed does not show up as good credit on buying the property.

Of course if home values go up, you will not be looking at a 100 percent but maybe a 90 percent loan which will help. But what does the house physcially appraise for, have you hired a person to appraise the home, if not do so first,
It may really be a 100,000 house he is asking 120,000 for.
I normally price my homes for contract to the high side because I can. So do most people selling on a contract for deed.

Remember if you pay a large down payment, pay for 3 years and can not re-finance, you loose everything you paid in on the home and just revert to being a renter in that same house, that they can evict you from, or let you continue to rent.

The first 3 to 5 years is almost all interest, so you would not pay anything hardly off the principble.

Thanks for your replies.

It's not that my credit is all that bad, but with student loans my debt-to-income ratio is too high to qualify for a standard mortgage (or save up much cash for downpayment). Which is why I asked about financing the balloon.

If I can't save up much cash to refinance the loan in 5 years, I need to rely on the increased value of the home to leverage a mortgage at that time.

However, after reviewing all the material, including your answers, I've decided that if I can't get a mortgage at this time my best bet is to continue renting and pay down my current debt until I qualify for a "real" loan.

Thanks again,

Steph