Seller Financing @ 2% with 15 year Balloon

Austin, Texas
Creative Real Estate Financing
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Seller Financing @ 2% with 15 year Balloon

Akshay Bhaskaran
Investor · Austin, TX · Member since 2022 · 68 posts · 52 votes

Newbie here trying to learn Seller-Financing. 

So, I came across this deal in Texas, and here are the numbers:

Seller financing:
- Purchase Price: $285,000.00
- Down Payment: $40,000.00
- Interest Rate: 2%
- Amortization: 30 yrs
- Balloon Period: 180 months

    Entry Fee:
    - Down Payment: $40,000.00
    - Assignment Fee: $5,000.00


    I have done a bit of a research, and here is what I've understood:

    Purchase price:     $285,000 
    Down payment:    $40,000
    Loan amount:       $245,000 
    Term:                     30 years
    Rate:                       2%

    - So, I will keep paying the loan of $245,000 at a 2% interest rate (around $906 Principal + Interest) to the seller on a monthly basis
    - At the end of 15 years, if I continue doing this, the loan balance would have become $140,723.46
    - And, this full amount of $140K is the due to be paid back to the seller at this time. Is this what a Balloon period means?
    - Also, I read that I can refinance it at the end of 15 years, but quite confused. Does it mean put some rehab on the property, force appreciate it, and do a cash-out refi? To pay back that $140K? 

    Thanks in advance. 

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      Jay HurstBusiness Member
      Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
      2y
      Quote from @Akshay Bhaskaran:

      Newbie here trying to learn Seller-Financing. 

      So, I came across this deal in Texas, and here are the numbers:

      Seller financing:
      - Purchase Price: $285,000.00
      - Down Payment: $40,000.00
      - Interest Rate: 2%
      - Amortization: 30 yrs
      - Balloon Period: 180 months

        Entry Fee:
        - Down Payment: $40,000.00
        - Assignment Fee: $5,000.00


        I have done a bit of a research, and here is what I've understood:

        Purchase price:     $285,000 
        Down payment:    $40,000
        Loan amount:       $245,000 
        Term:                     30 years
        Rate:                       2%

        - So, I will keep paying the loan of $245,000 at a 2% interest rate (around $906 Principal + Interest) to the seller on a monthly basis
        - At the end of 15 years, if I continue doing this, the loan balance would have become $140,723.46
        - And, this full amount of $140K is the due to be paid back to the seller at this time. Is this what a Balloon period means?
        - Also, I read that I can refinance it at the end of 15 years, but quite confused. Does it mean put some rehab on the property, force appreciate it, and do a cash-out refi? To pay back that $140K? 

        Thanks in advance. 

          You will want to make sure the value is not way over over stated because if it is not why in the world would a seller give you these terms?  But, to answer your questions:


          1. yes, a balloon means what ever is due at that time is due in full. Typically the goal with a balloon note is to pay off the loan long before you get to the point either buy refinancing or selling but with a 2% rate you will not want to pay it off early.

          2. and assuming the value, your credit ect will allow you to refi when the balloon is due you would just simply refinance what is due at current rates. The value today (assuming what you are paying for  is even close to true value and it does not decrease in value) is more then enough equity to simply refi the balance with no forced equity. 

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          • Jay HurstBusiness Member
            Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
            2y
            Quote from @Akshay Bhaskaran:

            Newbie here trying to learn Seller-Financing. 

            So, I came across this deal in Texas, and here are the numbers:

            Seller financing:
            - Purchase Price: $285,000.00
            - Down Payment: $40,000.00
            - Interest Rate: 2%
            - Amortization: 30 yrs
            - Balloon Period: 180 months

              Entry Fee:
              - Down Payment: $40,000.00
              - Assignment Fee: $5,000.00


              I have done a bit of a research, and here is what I've understood:

              Purchase price:     $285,000 
              Down payment:    $40,000
              Loan amount:       $245,000 
              Term:                     30 years
              Rate:                       2%

              - So, I will keep paying the loan of $245,000 at a 2% interest rate (around $906 Principal + Interest) to the seller on a monthly basis
              - At the end of 15 years, if I continue doing this, the loan balance would have become $140,723.46
              - And, this full amount of $140K is the due to be paid back to the seller at this time. Is this what a Balloon period means?
              - Also, I read that I can refinance it at the end of 15 years, but quite confused. Does it mean put some rehab on the property, force appreciate it, and do a cash-out refi? To pay back that $140K? 

              Thanks in advance. 

                You will want to make sure the value is not way over over stated because if it is not why in the world would a seller give you these terms?  But, to answer your questions:


                1. yes, a balloon means what ever is due at that time is due in full. Typically the goal with a balloon note is to pay off the loan long before you get to the point either buy refinancing or selling but with a 2% rate you will not want to pay it off early.

                2. and assuming the value, your credit ect will allow you to refi when the balloon is due you would just simply refinance what is due at current rates. The value today (assuming what you are paying for  is even close to true value and it does not decrease in value) is more then enough equity to simply refi the balance with no forced equity. 

                Hurst Real Estate, INC4.989 Reviews
                WebsiteView Page
                1Reply
              • Akshay Bhaskaran
                OP
                Investor · Austin, TX · Member since 2022 · 68 posts · 52 votes
                2y
                Quote from @Jay Hurst:
                Quote from @Akshay Bhaskaran:

                Newbie here trying to learn Seller-Financing. 

                So, I came across this deal in Texas, and here are the numbers:

                Seller financing:
                - Purchase Price: $285,000.00
                - Down Payment: $40,000.00
                - Interest Rate: 2%
                - Amortization: 30 yrs
                - Balloon Period: 180 months

                  Entry Fee:
                  - Down Payment: $40,000.00
                  - Assignment Fee: $5,000.00


                  I have done a bit of a research, and here is what I've understood:

                  Purchase price:     $285,000 
                  Down payment:    $40,000
                  Loan amount:       $245,000 
                  Term:                     30 years
                  Rate:                       2%

                  - So, I will keep paying the loan of $245,000 at a 2% interest rate (around $906 Principal + Interest) to the seller on a monthly basis
                  - At the end of 15 years, if I continue doing this, the loan balance would have become $140,723.46
                  - And, this full amount of $140K is the due to be paid back to the seller at this time. Is this what a Balloon period means?
                  - Also, I read that I can refinance it at the end of 15 years, but quite confused. Does it mean put some rehab on the property, force appreciate it, and do a cash-out refi? To pay back that $140K? 

                  Thanks in advance. 

                    You will want to make sure the value is not way over over stated because if it is not why in the world would a seller give you these terms?  But, to answer your questions:


                    1. yes, a balloon means what ever is due at that time is due in full. Typically the goal with a balloon note is to pay off the loan long before you get to the point either buy refinancing or selling but with a 2% rate you will not want to pay it off early.

                    2. and assuming the value, your credit ect will allow you to refi when the balloon is due you would just simply refinance what is due at current rates. The value today (assuming what you are paying for  is even close to true value and it does not decrease in value) is more then enough equity to simply refi the balance with no forced equity. 


                     So, you mean, this deal seems too good to be true? I mean even though the seller puts the house's purchase price at $285,000 - it does not necessarily mean the house is actually worth $285,000? Right? It can also be $220,000 or something like that?

                    0Reply
                  • Jay HurstBusiness Member
                    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
                    2y
                    Quote from @Akshay Bhaskaran:
                    Quote from @Jay Hurst:
                    Quote from @Akshay Bhaskaran:

                    Newbie here trying to learn Seller-Financing. 

                    So, I came across this deal in Texas, and here are the numbers:

                    Seller financing:
                    - Purchase Price: $285,000.00
                    - Down Payment: $40,000.00
                    - Interest Rate: 2%
                    - Amortization: 30 yrs
                    - Balloon Period: 180 months

                      Entry Fee:
                      - Down Payment: $40,000.00
                      - Assignment Fee: $5,000.00


                      I have done a bit of a research, and here is what I've understood:

                      Purchase price:     $285,000 
                      Down payment:    $40,000
                      Loan amount:       $245,000 
                      Term:                     30 years
                      Rate:                       2%

                      - So, I will keep paying the loan of $245,000 at a 2% interest rate (around $906 Principal + Interest) to the seller on a monthly basis
                      - At the end of 15 years, if I continue doing this, the loan balance would have become $140,723.46
                      - And, this full amount of $140K is the due to be paid back to the seller at this time. Is this what a Balloon period means?
                      - Also, I read that I can refinance it at the end of 15 years, but quite confused. Does it mean put some rehab on the property, force appreciate it, and do a cash-out refi? To pay back that $140K? 

                      Thanks in advance. 

                        You will want to make sure the value is not way over over stated because if it is not why in the world would a seller give you these terms?  But, to answer your questions:


                        1. yes, a balloon means what ever is due at that time is due in full. Typically the goal with a balloon note is to pay off the loan long before you get to the point either buy refinancing or selling but with a 2% rate you will not want to pay it off early.

                        2. and assuming the value, your credit ect will allow you to refi when the balloon is due you would just simply refinance what is due at current rates. The value today (assuming what you are paying for  is even close to true value and it does not decrease in value) is more then enough equity to simply refi the balance with no forced equity. 


                         So, you mean, this deal seems too good to be true? I mean even though the seller puts the house's purchase price at $285,000 - it does not necessarily mean the house is actually worth $285,000? Right? It can also be $220,000 or something like that?

                         A seller can put a  200k house on the market for 10 million if they want to.  I have zero idea on the value of this house but why would a seller sign up for 2% for the next 15 years when a 10 year treasury is paying right under 4%?  I mean what is the catch? I have no idea and maybe there is not one but go in with your eyes wide open. 

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                      • Tom S.
                        Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
                        2y

                        @Akshay Bhaskaran  Yes, certainly complete your due diligence.  You can at least get it under contract, then order an appraisal, inspection, etc.  

                        As others have mentioned, the seller can just sell and put the money in a CD at 5%, so why offer financing at 2%?  There are tax advantages to the seller, but definitely dig deeper.

                        Good luck!

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