Owner Financing Balloon Payment HELOC?

5 Replies

Hello BP members,

I am looking for information regarding owner financing and title transfer when facing a pending balloon payment. My understanding is that one would simply cash-out refinance right before the balloon payment is due and pay off the owner finance balance and then begin making payments toward the refinance note, or establish a HELOC. However, my assumption is that most, if not all, owner financing contracts do not hand over the legal title until AFTER the final payment has been made. Therefore, refinancing or using a HELOC from the property is not an option to pay the balloon payment because there needs to be a legal title that the bank or credit union can use as collateral in the event that money is owed and not paid.

Does this mean that if I were to hypothetically be in a negotiation with a seller and they want to have a balloon payment after 5 years on a 30 year amortization that I would need to ensure that the legal title is transferred to me at the down payment and not until after the final payment? Or would I need to find funding from elsewhere to pay off the balloon? If I had this property as well as other properties in an LLC, could I refinance one of the properties to pay off the balloon?

Please comment and help me understand this or if I am misunderstanding any information. Thank you!

Why would the seller not hand over title after property has been paid off, just because it was owner financed?

@Joe Villeneuve , thank you for your response!

I’m sure the seller in this hypothetical wouldn’t mind handing the title over after the buyer has paid off the owner finance note now that they are paid in full. But what about during the term? Does the owner keep the title until the buyer has paid off the note or does the title transfer before the note has been paid off? Is it transferred at signing?

Straight up "owner finance" where the seller holds a note and a mortgage Does include transfer of title at the time of closing. Land contracts, CFD's, do not.....if you had a "balloon" with one of those, you'd be getting a Puchase Loan, not a Refinance.

Originally posted by @Wayne Brooks :

Straight up "owner finance" where the seller holds a note and a mortgage Does include transfer of title at the time of closing. Land contracts, CFD's, do not.....if you had a "balloon" with one of those, you'd be getting a Puchase Loan, not a Refinance.

 You beat me to the answer.  It all depends on the type of Seller Financing.

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